How close to capitulation?
Blimey it must be serious.
Every European Union leader has signed up to the following statement:
"All the leaders of the European Union make clear that each of them will take whatever measures are necessary to maintain the stability of the financial system - whether through liquidity support through central banks, action to deal with individual banks or enhanced depositor protection schemes.
"While no depositors in our countries' banks have lost any money, we will continue to take the necessary measures to protect both the system and individual depositors. In taking these measures, European leaders acknowledge the need for close coordination and cooperation."
So the mayhem of uncoordinated statements and actions over the past few days by the governments of Germany, Denmark, Sweden, Ireland and Greece was simply an accident.
They're all back on the same hymn-sheet today.
Investors seem underwhelmed: the FTSE 100 index is tumbling and shares are currently almost 8% lower.
If sustained this would make it the third worst fall in the history of the FTSE 100 index.
Does this mean we're close to that fabled moment in stock markets - the point of capitulation - when investors lose all hope and dump their stock at any price?
According to the theory, there can be no sustained recovery until the markets are in the clutches of utter despair.
Not everyone subscribes to the pseudo-economic psycho-babble.
But it certainly looks hairy out there.
UPDATE 17:35PM:
Today was when no one could be under any illusion that the global banking crisis is primarily a North American phenomenon.
There's a mess in Europe too, because European banks were also seduced over the preceding few years into lending too much to cheaply to consumers and businesses.
In the past 24 hours, we've seen bank rescues in Belgium, Luxembourg and Germany, and an attempted rescue of an entire economy, that of Iceland.
We've also had the worrying spectacle of apparent disunity among the governments of Europe, with Germany, Denmark, Sweden and Spain all taking unilateral steps to reassure their savers - which risked destabilising banks in other countries.
And when EU government heads then issued an emergency joint statement promising to collaborate more closely, curiously that served to spook investors even more - presumably because it underlined the fragility of the banking system.
What's also prompted high anxiety among investors and bankers is the mounting evidence that the crisis in financial markets is causing a severe economic slowdown.
And when there's a collision of a financial and economic downturn, well the consequence can be painful - because rising unemployment leads to more loans going bad which further weakens our banks.
So the chancellor's plan to strengthen our banks by injecting taxpayers money in the form of new capital is also an economic recovery plan.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~16~RS~)
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My God Robert 'utter despair' is an understatement.
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The Federal reserve should employ Nouriel Roubini before its to late, its now one second to high noon
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If the leaders of the EU are talking in unison, one quote comes to mind..
"Don't believe anything, until is has been officially denied.."
(Sir Humphrey).
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We are a small manufacturing company, and while the events around us are pretty grim, we seem to be ticking over, albeit at a lower trading level.
What does worry us is the position of our bankers, who may override our local bank manager in respect of loans and overdrafts, causing us problems which we could not foresee.
The sooner some sort of stability returns, the better it will be.
Privately, we have no problems at all. house is paid for, kids are independent, etc etc., but we will have to continue working past retirement age to ensure a decent income level, our pensions were savaged by "you know who".
Peter
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It does rather look rather like a financial death spiral.
Somehow, if it is still possible, the relevant authorities have to get a couple of steps ahead of this and set up a firewall.
It is most unfortunate.
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We'll all soon find out what Jonah Brown and the rest mean by 'doing anything to save the financial system'. A new 24-hour standing war cabinet will try to tackle the crisis.
Credibility crises will emerge as clearing banks need bail-outs and huge amounts of taxpayers money has to be pledged in support. When goverments have to pledge amounts greater than their total treasury budgets - that will be the moment of truth for all their promises.
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Can Robert explain something to me. If all these banks have lost billions of pounds, who's got it now ? It cant just vanish. It cant all be in property that cant be sold.
How can I get hold of some of it?
And if nobody has it, because its all about banks lending money that they dont have, then surely the only alternative to a total meltdown is not a national devaluation, but a global devaluation, with the weakest countries paying for the richest.
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It's got to get a lot worse before it gets better. We as a society have been living on borrowed money for so long, and sooner or later the debts have to be repaid.
When people stop spending and start repaying everything implodes from there, it's a simple chain reaction. Nothing the EU can do about it, except devalue the currency which stuffs just about all of us.
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So the US bail out achieved nothing, not did the EU meeting in Paris at the weekend.
Clearly nothing the west's governments do is going to make an iota of difference so they may as well do one of the following:-
1. Nothing - let the whole capitalist system collapse in a heap, then rebuild a better one from the ashes.
2. Nationalise the entire banking system, sack their managements, and put in good old fashioned bankers in their place - supposing they're not another extinct mammal.
Before anyone suggests it I'm no socialist, but clearly the whole system as it stands is going to hell in a hand cart, and will take a hell of a lot of us with it.
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Unless and until the root cause of this debacle is addressed, over inflated asset/property values then it will continue. As no self respecting home owner is going to voluntarily reduce the price of his house the 50% or more that is necessary (not least because he then almost certainly be up to his neck in negative equity) then the crisis will persist.
Oh dear.
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davidxandrews, the point is that money was created out of thin air and can disappear into thin air just as easily.
When banks lend money that doesn't really exist and it gets used to bid up prices of everything from gold to property, everything looks great on paper. Then when the day of reckoning comes it's discovered that the "value" of these things isn't as high as people hoped, and the money disappears again.
That's a monstrous oversimplification, but gives you a very basic idea of how it works.
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Does Alistair Darling really think repeating this waffle reassures anyone? Is the irrelevant fact that no depositors have lost money yet supposed to be a substitute for guarantees?
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You wrote last week of the Credit Swaps auctions!
To restore confidence, should the ISDA not publish every Credit Swap deal, with the signature of the signee, company name and the Credit Swap deal it is netted off against.
If there is a $1.5 trillion hole, then let's see who is holding the toxic loans, or what's left once the toxic loans are netted off against each other.
As it stands the banks seem keen to hold to one another deposits in loo of these loans maturing.
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I'm not selling, I have a small number of shares, bought in desperation after Gordon Brown savaged my pension, rendering it worth less than the not inconsiderable sum I've paid into it.
Both shares and pension have already lost so much value there is little point in selling, but I believe that if everyone else thought the same way the problem might just be solved!
What about someone issuing a plea for shareholders to stop selling - or better still start buying. Would this cure the problem overnight?
A bit of leadership is required!
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Thanks to Robert for superb clarity during these torrid days.
Perhaps the best thing that will come out of this situation is that all who have experienced this insecure environment will never again believe anything that appears to good to be true. I certainly will do my utmost to create personal and business growth based on a solid foundation, any debt I take on will be secured by a quality assett. I have learnt my lesson, I hope others have as well now, and in the future. Everyone has a responsibilty to pass on these messages to those who have not directly experienced these events.
I wonder what political capital Al Quaeda etc will make of the usury of Western Capitalism versus the practices of Sharia based finance.
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Is it true that this is actually the relatively straight forward period? I keep hearing that there are a zillion dollars of derivatives of which CDS are looking very dicey.
Therefore I keep feeling like hearing that the Captain of the Titanic has just asked the orchestra to keep playing whilst he has a good hard think .....
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It must be serious if the BBC et al are spending so much time speculating ("How close to capitulation?" etc), thereby ensuring a dire situation gets worse. But then, you're right, it's your jobs to do this. Of course. Silly me.
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Robert wrote:
> Investors seem underwhelmed: the FTSE 100 index is tumbling and shares are currently almost 8% lower.
Why are you surprised? Investors are selling to deposit their cash in the banks that are now backed by their Governments!
But as you also say, when will they come out again and start buying?
Ian.
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Probably later this week. Perhaps next Monday.
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I have been down at my vegetable plot lifting some potatoes, I think I will be needing them in a few weeks. I have got them all in pits.
The first sign of distress will be Local Authorities running out of money. I would think we will see it soon.
Brown and Darling were bad enough but with Mandy there it will be disaster.
regards
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In fact, the situation is so terrible that I think that within the next few weeks, it'll be a 'no-brainer' buying certain shares.
And/or wait a bit longer for the avalanche of 'buy-to-fret' properties to appear.
I suspect that quite a few 'vulture capitalists' are patiently sitting on the branches.
There is a concept of 'intrinsic value' which seems to be buried in the current febrile atmosphere.
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The drama really began when the politicians in the States got hold of it and European politicians are now doing the same. The only benefit is that they have accelerated the whole process. Can we look forward to a big rebound tomorrow? What I find odd is that European markets have fallen by similar percentages all day. Does this mean that it is co-ordinated selling by a few big players or does it just happen that way?
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Personally... I wish they'd stop bailing banks out, stop interfering in markets trying to stop short-selling, let any weak institution fail, and then begin again. Capitalism isn't dead, but it seems that the govts are trying their best to kill it simply to prevent anything else from killing it first. Every bit of government intervention has led to markets collapsing further - see the reactions to the US bail-out plan, the ban on short-selling... banks have gone bust before, and the world kept turning. Why do politicians have to keep meddling? (well, apart from the obvious that they need to be seen to do something.) If they'd let the rubbish banks go bust 6 months ago, the better banks wouldn't be struggling now!
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Watching Comrade Darling bleating about nobody having lost their savings reminds me of the man who jumped off the Empire State Building. Every few floors he passed, he just muttered "well, so far, so good"
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Robert,
Don't forget it dropped faster and further before Iraq war (2003), but doubled soon after.
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I've been listening to BBC parliament proggy...Well, now we know, AD will listen to views, is very aware of the concerns of individual savers and borrowers, oh and businesses as well, he will consider all the options, and do whatever is necessary, and will come back to the house to tell us what he is going to do just as soon as he considers it necessary. More blah blah, here's the fiddle Gordy boy, can anyone smell smoke.
Pass the sick bag Alice, we are all doomed.
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Thought Crime 2008, No 11
So, you are saying that the money over and above our actual (real) wealth has been artificially created by the banks, for the express purpose of lending it.
So in other words, we have been printing money that we dont have? Another type of inflation for the economic textbooks.
I presumably now must put my money into the currency which is least likely to be devalued.
What is the Chinese currency anyway ?
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This situation is now so ridiculous, particularly after Germany's actions yesterday, that it is hard to see what point these statements now serve other than confirm what many of us always knew, i.e. when the chips are down every country defaults to self interest.
Indeed, anyone who deceived themselves that closer European integration would lead to economic stability must be licking their wounds. The collapse of the Euro cannot now be too far off.
The problem very simply is that the economic illusion of recent decades has finally been rumbled. This was inevitable.
Our whole economic system has been built on increasingly unsustainable borrowing mechanisms that involved governments, financial institutions, businesses and individuals all spending considerably more money than could ever conceivably exist. It also masked an inverse correlation between incomes, that have fallen in real terms year on year, with day to day costs of living, i.e. mortgages, gas, electricity, council tax, etc. which have risen year on year.
The net result, as we now are seeing, is first a complete worldwide economic crash to then be followed by a long-lasting and ensuing depression. Sadly, in a very short time we will see businesses collapsing and mass unemployment - we are talking at least 4-5 million here in the UK alone, though probably more.
Anyone who is deluding themselves that things will just pick up soon and that this is perhaps a good time to set up a business is in for a rude awakening - this is not a recession, but a depression. The problem is not liquidity, i.e. the freeing up of available funds, but insolvency, i.e.not enough money in existence to get the economy going again.
In the 1930s the problem was eventually solved, but not as is often thought, by Roosevelt's New Deal, but by WWII. The question we face today is what the hell will solve this one?!
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The scary thing right now is the sense of acceleration, with each market following its predecessor downwards. At the same time I still have a feeling that we're waiting for The Big One - a major bank (or maybe a government?) hitting the rocks.
I don't get the sense that governments have got a grip yet, though there are some tentative signs of progress. First, banking is about confidence, so the wave of depositor protection initiatives has to be a positive. Second, banks are under-capitalised, so suggestions that government may recapitalise banks (in return for equity, warrants, etc) are welcome.
But the root problem is the slide in asset values (principally in housing) to levels far adrift of the dents 'secured' against them. No-one seems to have quantified this gap yet. We know who loses this money - homeowners, bank shareholders and governments. But this crisis has been going on for a year - why has no bright economist (in government or elsewhere) actually managed to quantify the damage yet?
It seems fairly obvious that you cannot begin to deal with a problem effectively until you know quite how big that problem is.
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I am reminded of the joke that if Alastair Darling is reassuring you, then it really is time to panic.
This is the first real crisis of the age of instant communication and capital markets all over the world including Russia and China- are we making it worse by all having access to the data throughout the day and with always knowing when London is shut what is happening in Asia or the US. It is unbelievably fascinating how this is unfolding but so unpredictable.
It is also the first time that many bankers have faced movements in the markets that are so large- a few basis points is normal volatility so what on earth do they call it now.
I am sure we will all be much wiser for all this- just a shame that so many of us will have lost such a lot of our savings- still who really wanted to retire and have a good time anyway.
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".... leaders of the European Union make clear that each of them will take whatever measures are necessary to maintain the stability of the financial system."
"Maintain the stability", by definition, requires that there is something out there which is stable and is possible to be maintained in that state!!
Might I recommend the following:
"If you are keeping your head while all about you are losing theirs; you probably haven't grasped the seriousness of the situation!"
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14:
Nice idea, but the precedents are not encouraging. This was tried in 1929, when a group of three US investors bought huge quantities of US Steel stock above the market price. This gesture rallied the market briefly, but failed to stem the slump in share prices.
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For the past 14 months Brown and Darling have continually proclaimed that the Governmet will do anything to maintain stability in the financial system. However, over this period we've been in a deteriorating decline yet all the while we get, "the Government will do anything to maintain stability in the financial system". What have they done and where's the stability?
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I said we need to let it crash. Any money put in by Governments will just disappear into the big black hole.
Save the money let it crash then use it to rebuild afterwards
or
just cancel all debts world wide and start again.
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How many more times are we going to hear a politician or economic guru/commentator say that they are "going to do whatever it takes to bring stability to the financial system".
They clearly do not know where the problem lies nor how to shore it up !!
Does anybody remember the ERM Mechanism and how the Central banks would do "whatever it took" to keep the currencies between predetermined bands against each other.
This was broken by George Soros and others and the current proposals will go the same way.
The "professionals" within the markets will benefit and the taxpayers and the ill informed individual investors will be left to foot the bill.
Throwing money into a "Black Hole" will not clear the problem.
Liquidity in the LIBOR markets (3 month rates) are the key barometer.
Force the moneys to be lent to allow people to trade and survive not shore up balance sheets and the run on deposits.
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Food rationing ! Martial Law ! Declaration of State of Emergency ! Troops on the streets !
Which will be first a run on a bank or the shelves of the supermarkets ?
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#7 davidxandrews
"If all these banks have lost billions of pounds, who's got it now ? It cant just vanish"
Good question. Each debt must have a creditor as well as a debtor. The banks aren't the ultimate creditors. I'd like to see some breakdown of who is. Asian Sovereign Wealth funds and Banks? Hedge funds? Pension funds? Presumably these are the sources of the "money market" funds which have been pulled out of our banking system in recent weeks.
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Being what I like to consider an "older hand" having worked the City for over 30 years, I've seen all this before. This is without doubt the worst I've seen, but everybody should look on this as a golden once-in-a-lifetime opportunity.
Top up your unit-linked equity pension fund, increase your savings in unit trusts and pile up as much cash as you can whilst interest rates are still nominally "high".
Those who increase their pension savings (linked to the markets) now will look back on this period as a godsend.
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Bailout? What Bailout?
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No matter how you try to spin it today was one of the most farcical and damaging performances of a chancellor I have ever seen.
Reassuring one reporter put it. That must have been the government line he quoted.
Totally negative boring and useless
They are peddling backwards.
Being totally impartial over this the real plan for action came from the Conservatives.
It was obvious from the goon like smirk on GB's face he has no intention of listening to anyone but himself.
Heaven knows where that will take us.
The bawling and crazy behavior coming from labour back benchers during Vince Cables sensible speech beggars belief. Although I don't agree with everything he says he certainly deserves a hearing.
Watching Alistair Darling drolling on as if we have all the time in the world as the footsie was dropping like a stone on screen just about sums up the dire situation we are in.
It's time for the men in white coats to take them away.
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It certainly looks hairy! Over £200 billion disappeared today. Ouch!!!! This can't go on for ever otherwise the economy will fold and we can all go home and dig turnips.
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Hair-raising !
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What the heck is all this doom and gloom ... the current drop puts us back to where we were in 2005, not 1905 ... its not the end of the world ...
Remember (most appear to forget), stocks can go down as well as up ... when going up, we forgot the "down" bit ... and now that its going down, are we forgetting the "up" bit.
We are in a down cycle as the credit bubble unwinds ... and when done, the stocks will ... gasp ... go up again.
So ... if you are day trading or recently in ... alas, its not good, but on the other hand, if you treat this, not as a casino, but as an investment and go long on your holdings, then you will be OK.
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23:
Quite right, you do need to let bad banks fail - we won't see an improvement until this has happened. But I also think that, politically, you need to protect depositors in such as situation. Uncertainty is massively distorting the market, and represents the principal route by which the crisis in the 'financial' economy is spilling over into the 'real' economy.
Bring in 100% deposit protection, then let the weakest banks fail. This is probably the denouement of this process.
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This is getting rediculous,and its being made worse not better by the 24hr news coverage..case in point being the BBC snazzy "Global financial crisis" logo incorporating the big red downward arrow ,which half wit thought of that..subliminal suggestions are outlawed by the advertising standards agency for good reason..they are highly effective. If what the majority of correspondents want is to be a fly on the wall at the end of the western world as we know it then great have a good one mate..however some of us are more concerned with mundane things like preserving a way of life.
Its time to censor the output of news channels and close the markets in banking stocks until such a time as their capital funding requirements have been ordered in a environment where planning past the next 5 minutes appears possible.
When joe public gets scared..he has a limited number of options,the main one being to take their money out of the bank and hide it in the house, this is the only action that if repeated by enough people can actually guarantee financial disaster..nothing else can.
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AND STILL THE CEO's OF OUR BANKS REMAIN IN OFFICE!!!......what do they have to do before they are kicked out and prosecuted?.........I can only think they have to comit MASS MURDER before the authorities go after them!!!
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For 'CAPITALISM WILL EAT ITSELF!'
read
'CAPITALISM HAS EATEN ITSELF!'
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I wrote yesterday that this week will be decisive in many ways. There are some serious issues to be resolved or not that will simply tell whether the western financial system can remain in its current form or not.
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Please, Robert Peston, do not aggravate the situation further by taking an ego trip. Your coverage is impressive, your reporting crisp and stylised, but you are beginning to talk things up by dramatising the current state of affairs.
People need to keep their nerve; we have been here before with the stock market, and we need to be sensible. Your very influential reporting is becoming alarmist, more colourful, and clearly unhelpful - and no longer, I believe, completely neutral. Neutrality is expected of the BBC.
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For another perspective on this, it's well worth reading what Robert Prechter has to say about the current situation. For those who don't know him, he is the guru of Elliott Wave theory, and applies it through what he calls socionomics, a combination of economics and social psychology. I have been reading his works for about 5 years during which time he has been predicting a depression worse than that of 1929, while enduring derision from all sides. He also called the great bull market of the 1980's while everyone else was in despair. He has some suggestions for preserving wealth in the most turbulent of times as well.
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In a few months or so, buy bonds. the gold/silver rise will stop soonish.
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I posted in an earlier entry about how I thought that perhaps this wouldn't be so bad had access to such vaste amounts of information not been so easy. New car registrations are down by 21%, of course they are, I should imagine that most new cars are paid for with some sort of loan and those people still able to get such loans might just be thinking that now might not be such a good time to commit to three years worth of £500 a month payments. People are panicking, or at least being a whole lot more cautious because of what they're seeing in the media, constant streams of the FTSE and Dow plunging the depths, Robert's constant stream of news, Micky Clack and Andy Verity giving it doom and gloom every single morning. I was planning on buying a new car, and a new push bike around this time, but I'd be foolish, or so the media would have me believe, to do so at present. Isn't this becoming self perpetuating?
My second point was to those who say, "Let the banks fail", "Greedy bankers" etc. I should imagine that there aren't that many people who work for banks who actually make the decision to borrow more than they can afford, about 1000 in the world? Most of the 'bankers' are back office staff, branch staff, IT staff, call centre staff, like you and I and these number millions, nothing flash, no massive cars, no swimming pools, bonuses, but not massive bonuses. I work for a bank, I'm paid well but not stupidly, I live in a terraced house, I drive a seven year old car (which I admittedly bought when it was 3 years old), I holiday under canvas in this country. I certainly don't roll around naked in a swimming pool full of cash as some would portray us 'bankers'. We're the ones that will ultimately suffer should "The greedy bankers be punished and allowed to fail". Everyone is crying out that there's a problem with banking, would there have been such a problem people not stretched themselves on credit cards and store cards, mortgages and car loans chasing something? Banks didn't give it away, and they can't be held entirely accountable, yes their practices were clearly wrong, but if you're going to borrow money from anywhere that you know you'll struggle to pay back then, in my opinion, you have to take some responsibility. I think there's a problem with society.
If you're on a diet and someone offers you a great big cake are you going to take it just because it's there? Yes? Well take responsibility for getting fatter then.
I'm fully prepared for this comment to be taken apart by the more knowledgable among you, because it's reactionary, hastily composed and probably all wrong.
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I think based on the chaos and panic that has griped the markets the world stock markets are close to capitulation.
I can't se any light at the end of the tunel, by nationalizing banks and taking over their extrem debt is no way to calm or balanc the markets.
No one mention that all the accumulated debt has to be payed one way or the other but where is the money couse I see none
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#19 Johnnie-london
Great post on the other thread about jap banks - slipped past the moderator for a few minutes! I think it is essential we all maintain a sense of humour at the current time, so carry on watching AD and the f...lying Scotsman.
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This comment was removed because the moderators found it broke the House Rules.
People keep asking where the money comes from and where does it go. To boil it down to basics, a commodity is only worth what someone will pay for it. If nobody wants it, it is worthless. Now to put this into context vis-a-ve the money markets, it means that share prices drop as more and more people realise that banks and institutions are high risk, companies will come to a grinding halt without cheap cash and personal spending is limited to the esentials of food, warmth and shelter. So all the rich kids dump shares at lower and lower prices, hoping to jump before the real crash happens, ie when no one will buy any share at any price. But you say, 'All this money has to go somewhere', Normally (1929) it would, into bricks and morter , but not this time. Perhaps gold? not this time as the world has no gold standard anymore. So where? Nowhere. It goes nowhere. Money itself becomes more and more worhtless.
This crisis will devalue all the world curancies. Protectionism will cut in and countries that are not self sufficient will hurt very badly.
The illusion that printed paper has intrinsic value will become harder and harder to maintain.
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# 21
John,
You're right. It certainly will be a no-brainer soon about buying certain shares. Valuations of a number of stocks suggests we're already there. However, in the kind of panic we have now, nobody is willing to re-enter the market for fear of "catchng a falling knife". If you want a good macro signal about buying UK stocks, it's when the yield on the FTSE All Share Index is higher than that on 10 year gilts. It's well above already, so even if we apply a discount to the FTSE yield to cover possible dividend cuts, we still have a clear Buy signal. However, that all assumes we have a banking system, and at the moment the market still doubts that it won't all come crashing down.
As for "vulture capitalists" you are again totally right. There will be plenty of private equity funds looking to invest, though they typically need debt finance as well to make deals attractive, so nothing can happen until bank lending restarts. Worth noting that Lehman's asset management businesses were bought up by a private equity consortium last week. They appear to have paid 0.01% of the businesses' assets under management. Until the recent crash, the going rate for purchase of an asset management business was 0.03% of funds, so a two-thirds discount here.
The loss of focus on intrinsic value in today's febrile atmosphere is palpable. The one proviso I'd make again is that we need a functioning banking system to realise that value. So until confidence emerges that the banking system (though not necessarily any particular bank) will survive, fear of collapse will outweigh intrinsic value. It manifests itself in a 100% weighting to any bad news and a 0% weighting to any good news, which is what we're experiencing now: bad news causes share price falls, good news gets ignored. There's a (share) buyers' strike at the moment.
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davidxandrews
Money doesn't exist in that the moment we moved away from the gold standard it wasn't backed by anything. If you look at your £10 note it's actually a promise by the bank of England to pay the bearer of the note £10. That used to be £10 in gold, now they can't give you anything.
It's an oversimplification, but money at the moment has value because we believe it does. Therefore you can create it by convincing people it's there. That's what cheap credit did, we all thought we could borrow much more than we could afford based on the fact that our houses would be worth more in the future so everything would work out.
What we are experiencing now is what happens when everyone collectively snaps out of the delusion.
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I must admit, I can't help but admire the russian solution to a large sell-off ... just close the market until the panic passes :-)
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The banking system is going to go down - we all know that - and, to be honest, I would prefer it to be sooner rather than later and that governments didn't continue to waste billions of our taxpayers money trying to prolong the agony and merely create even greater debt for the future.
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Robert please can you explain why this is so serious?
I must be missing something but all I can see is that borrowing money for everyone is going to be a lot more difficult
This doesn't seem to be a bad thing.
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Where does the Bank of England get all this money?
Is it just printing out cash like Zimbabwe or do they act as a building society.
Bank 1 gives Bank of England 10bn on deposit
Bank of England give out
3bn to Bank 2
7bn to Bank 3
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I run a small UK firm and this situation is, frankly, terrifying!
I think Brown and Darling have been actually looking the wrong way. The money that feeds the banking system (when it works properly) is made at desks like mine and on telephones like mine. I make and sell things. They just don't get it, do they? What's happened is consumer confidence plummets. When that happens people stop spending, immediately. I've seen this happen loads of times when interest rates go up, our phone stops ringing and then after a week or two confidence returns.
Not this time!
The govt needs to put a moratorium on the usual bank responses of repossessions and foreclosures pretty quick because otherwise a heck of a lot of people whose livelihood has suddenly been withdrawn are then also going to get 'punished' in the courts, for something that is NOT their fault. Might go someway to placating folk who feel that banks have had the 'lion's share' of govt help.
I should have though that MPs would be out and about canvassing people's views and ascertaining their needs, then feeding these concerns back to Parliament, but they aren't. That's what MPs are for isn't it?
GC
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Will someone tell me why we have not been told to simply place savings into a good old building society. Seems to me they are not carrying the same risks as banks which have exposed themselves to the derivatives markets.
Banks as companies have shareholders, shareprices etc and are thus subject to the usual vagaries of the stockmarket ie they can go up as well as down.
Building societies may have problems with the reducing value of their main assets ie property, residential , commercial, land etc - but as long as savers put money into their accounts they will at least be solvent and the more money we put there the safer our savings will be regardless of depositer protection.
Then the main risk/issue will be devaluation of the currency !!
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Out of all this will (eventually!) come a better way of running the show ... it's a GOOD THING.
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52
"would there have been such a problem people not stretched themselves on credit cards and store cards, mortgages and car loans chasing something?"
Yes there would. Uncontrolled consumer credit is merely the smokescreen perpetrated by the banks - it wouldn't bring the entire financial system down.
What is going to bring the system down are the CDSs and CDOs and the absurd, unsustainable leveraging - all things that that banks have created themselves over the last ten years to boost their own profits and bonuses.
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A sense of perspective is crucial. But that is difficult if you are in a white out!
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The current crisis will not be resolved until the impetus within the press and media has peaked - yes, it is a noteworthy news story but it has become self perpetuating for the time being - whilst 'experts' predict house prices (on which our economy has become considerably more dependant than the Bank of England considers) will fall 25%, the fact is that they climbed some 100% in the preceding 4/5 years.
Public confidence is the key - whilst the Chancellor and Prime Minister promise that everything will be done to protect the economy, in truth there is no 'magic pill' (the promise of $750bn hasn't produced a magic response yet) - only time will see this one resolve itself.
Sadly, the last recession took 5 years - let's pray this one sorts itself sooner
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The real issue is the willingness of the banks to lend to each other and if you think about it - would you lend money to the same people who are the cause of this mess in the first place. I think not
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I propose that Mr Peston asks for an interview with the leading British bankers, and asks them collectively to come out and tell us where they believe they stand. The facts. If they won't, then as public businesses they totally deserve the lack of faith that the public now has.
They are still now playing poker with our lives.
This will eventually lead to not only less money deposited, but also many more unpaid debts as the public lose yet more confidence - or in reality lose their jobs. The perfect storm.
The last year has seen many empty promises, so where are the facts? I presume they do employ accountants... even for their off sheet accounting. They can all turn their cards over at the same time.... it would make for a great BBC prime time program, much better than waiting until the system free falls.
I am certain that I have never failed to pay my dues..... and I will not be paying the dues of my bank because they couldn't. They are the "experts", not I. Sadly, the politicians have a habit of doing the wrong thing.
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Your financial commentary is simply the best Robert.
I believe we are going to see a massive revaluation and devaluation of Western assets and currencies as the bubble of the last 15 years bursts.
If I'm right there will be a concerted rush to gold at the end of all this as paper money loses its value/purchasing power.
Hang on to your hat.
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What are you all talking about? This is great!
It's like being in a sweetie store. I don't know where to start first!
Probably banks and property, or maybe emerging markets.
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Surely the sell off in the stock market is a good thing in current circumstance. Shares are sold, converted to cash and this will increase liquidity in the banking sector as this moves from trading accounts to the banks.
When / if the money moves back to the market the "lost" value will be restored.
Or am I missing something?
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Hairy indeed, very hairy :-)
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Robert,
That's not how I read it at all. I think that large institutional investors and the likes of Mr Soros think that they can push the governments further into making the concession of unlimitred compensation or cover for savings (and debts...and anything else?) before sinking banks end up on the market for next to nothing. They'll snap them up, asset strip them and let government (that's you and me as taxpayers) pay to clean up the mess.
Enough is enough. We have to call the bluff of these guys. Governments should agree to underwrite savings ONLY for banks that remain BOTH solvent AND with a credible takeover in prospect. Savers can leave with their money from the rest, and those banks will at least have a quick death. The likes of Mr S and others would then have to second guess which banks would stay and which would go - and that would prevent this concerted effort to force down the price of all financial stocks.
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Hi Rob,
We haven't reached the bottom yet!There is still a hell of a long way to go and that is without the moderating influence of the short sellers booking profits.
Dow Jones 7000 is probably a good buying point.
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I've read about 1929 but I never thought I might observe a sequel! This seems to signal the end of laissez-faire free-market capitalism. If only the 'roundabout' could stopped whilst a new economic ethic is constructed!
Perhaps our politicians will now accept that public-sector values are preferable to those whose aim is solely to maximise profits? Maybe too, the culture of greed could be tamed by a progressive income tax?
Things really do have to change!
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2008 = 1930
Everything always happens in the autumn/fall!
So what are the lessons of history?
I think we can expect to see wage cuts in the public services and private sector in 2010. (And the Olympics of 2012 will become known as the austerity Olympics.)
The banks will be de-facto nationalised with a total loss to the existing shareholders.
Peripheral financial gambling business will simply fold. (e.g. hedge funds and private equity/venture capitalists.)
Interest rates will rise and borrowing will be almost unobtainable for a decade. Loans will be called in. (Mortgages that come to the end of their term will be required to be repaid and a new mortgage will not be available. House prices will halve.)
I would not be surprised to see a rise in protectionism and exchange controls.
The UK will adopt the Euro for its own protection sometime in the next 2 years probably as the first act of a Tory / or National government. The Euro will remain as a viable currency as it provides certainty for inter-country European trade. Indeed the Euro will prevent the rise of competitive economic policies between European countries and so prevent a European war. If the Euro collapses all bets are off and the probability of a European war is far far higher.
The US Dollar's and the USA's hegemony is over, as is the current structure of the IMF (by the way why haven't we heard from the IMF in all of this ?!!!!)
Reganomics and Thatcherism will be seen as the direct cause of this depression and a new more regulated financial World will result.
Until about 2058 when a new Thatcher will be seen as the saviour of the stagnant (hopefully not post WW3) financial sector and when it bubbles again - to collapse again in the autumn/fall of 2086.
That's my view anyway! In a sense it is not all that depressing as I see light at the end of the tunnel, a long tunnel.
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"7. At 4:12pm on 06 Oct 2008, davidxandrews wrote:
Can Robert explain something to me. If all these banks have lost billions of pounds, who's got it now ? It cant just vanish."
Yes it can.
No it can't!
Yes it can! it can it can it CAN!!!
That's exactly what happens. It vanishes in a puff of debt.
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As the soveriegn wealth funds, mainly in Asia and the Middle East seem to be the only ones who have any cash left to spend, how low does the market have to fall before it is not just football clubs that are being snapped up at bargain prices, but the bulk of the FTSE 100?
As to that being a good thing or not depends on your world view and belief in letting the markets make their own way. We can't bleat about free markets being the only way forward when things are rosy, and then getting protectionist when the middle and far eastern cavalry comes riding in with cash in abundance.
Perhaps they are right now sitting in the wings, sipping very strong, sweet tea, reading Robert Pestons blog and waiting for him to proclaim the bottom of the market has been reached!
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@davidxandrews - I've got lots of that lost money. If you want some, send me cheque for as much as you want and I'll send you nothing back. How about a house too? I can let you have mine for 40% more than anyone else will pay for it.
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The US bailout has not had time to have any effect and will not have any effect in establishing a market for toxic paperwork for at least a month, probably longer.
There is no real difference in the situation. The US politicans stalling in the face of adverse US public just whipped up the fear, that was the process.
The US bailout is intended to be a firebreak, not stop the fire, the fire is still burning. In Europe nothing really has been done, just the odd intervention on individual banks. It is all still a fire in progress. Banks are still expected to get in trouble for months. Months not days.
Investors with money sitting on the side will not move until they consider the bottom is approaching or reached. There is no sign of the bottom. Jump in too quickly and you just join the damaged goods
As far as the banks go, we have already seen diffculty in reaching decisions quicker than the situation develops. Lehman Bros turned down a rescue offer a day or two before collapse (26 dollars a share was reported I believe) because it was seen as too low, better than zero but they baulked and wanted to try and wriggle through.
The question is - do the banks still want to try and get relatively cheap liquidity from the taxpayer rather than giving up independence.
At what point will the banks give up independence, not until the last minute. At what point does the government in an affected country intervene, not until there is absolutely no option. We are still seeing the same problem as surfaced with the US bailout, there is predominately fear on both sides, there is little greed to balance the fear so progress is slow.
If a part nationalisation is the solution it is not even clear at this stage that the all the parties, and it has to be all of them, can sit down around the table and talk sensibly about a deal. you cannot have repeated deals made, stop, add new parties, re deal, stop etc. If the solution is sector wide the discusions have to be sector wide, that is the problem. If there has to be EU wide action it is that much worse. When banks are international businesses with activities in multiple countries it is that much more difficult.
In the meantime the fire continues to burn and damage will rapidly develop in the UK economy, particularly in any sector which was bouyed by the property boom. The issue is not recovery because that occurs at some point, it is when recovery will happen and what happens in the meantime.
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Dear Robert,
Could we please have some grown up journalism. You constantly refer to the Federal reserve as America's Central Bank, a fallacy engendered by lazy journalists. It is not Federal It has no reserves and it is not a bank. Please do not make this mistake again. Whilst you are at it you should look at who the beneficiaries of this current crisis is, as a very basic, if not always correct starting point I suggest you read Naomi Kliens "Shock and Awe". As a highly paid and regarded journalist please take it from there. I for one am getting fed up with non factual reporting.
Hoping for better things from you.
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There are rumours (again!) of the fact that the US has begun minting the Amero, the new "supposed" pan-american currency somewhat akin to the Euro for when the dollar bombs and becomes less useful than loo paper.
Will we see a time soon when all commodities are traded not in the US dollar, but in the Euro? Hasn't Iran and Venezuela already begun to settle oil in Euros?
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I thought the saying was about 'chickens coming home to roost'. I did not realise it was referring to 'headless chickens'. I thought that the European Union was supposed to act as a body, not one by one like sheep. What was the purpose of last week's meeting if afterwards they were to go off and act independently? Is there nobody in the driving seat to bring this runaway train to a halt before it hits the buffers?
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#78. Reganomics and Thatcher as being the cause of all this?
What about the mortgage/housing boom encouraged by Clintonomics or the consumer led boom encouraged by the Gordonomics?
And the scrapping of the specialist sector regulators in favour of the one super-regulator, the FSA, in the UK? Courtesy of Gordonomics. And the removal of banking supervision from the Bank of England? Courtesy of Gordonomics.
We have this problem because Banks have lent too much money to people who cannot afford to pay it back. This doesn't date back to the 1980s. It has grown out of all proportion since 1997.
If you really want to blame Thatcher then why not take the extra step and blame her parents - and theirs too. The argument you have used is illogical.
Greed, encouraged by a lack of regulation, has been the problem.
In 2001, the new FSA said in their guidance to the Training and Competence rulebook that firms should link remuneration packages to performance and adherence to market conduct and regulation.
So what went wrong?
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Can someone tell me why I earn three times the average annual salary and can't buy the average house in this country??? And I am 28 so my mortgage can be loooong...
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#13
"To restore confidence, should the ISDA not publish every Credit Swap deal, with the signature of the signee, company name and the Credit Swap deal it is netted off against."
Hm... now who would you expect to be on that list?
You see one of the principal features of Single Name CDS is that it can be used as protection for junk bond. Junk bond + CDS is AAA that would have been a 'reasonable' investmment for a low risk appetite Pension fund etc.
or maybe not.
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There are two opinions that matter in the world today.....
The first is the opinion of bankers, politicians and the like, all of whom are trying to convince each other that liquidity, stock prices, market confidence and the like can be somehow rescued. It just takes the right "words" such as "we will do everything we can to avoid disaster".
Then there is the opinion of us foot-soldiers who live and survive here on "main street".
Today we get news that the motor industry is down 20% in the month of September. Is that a result of the credit crunch? Sort out the banks, drop interest rates and we will all gladly go out and buy a new car?
Or, is it the result of us infantrymen VOTING WITH THEIR FEET?
Maybe the man in the street appreciates that the age of of austerity is once again upon us. Its a very natural reaction after sensing danger to start taking avasive action. We stop buying and conserve our funds. We have families to house, clothe and feed. The new car can wait another year (or two), so can the bigger house and the holiday.
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"51. At 5:00pm on 06 Oct 2008, Mandricard wrote:
In a few months or so, buy bonds. the gold/silver rise will stop soonish."
lol. no. Completely backwards...
Oh wait... Yes, buy bonds, sell gold and silver.
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The economic slowdown was occurring before this financial crisis. No rational person believed government or analysts' recent predictions for the growth in corporate earnings for the next 12 months. Credit contraction followed by economic contraction has always been the cycle.
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I think a major problem is not only depositor confidence but investor confidence which has taken a battering by the handling of and subsequent stealing of NR and BB by the government.
Although relatively small banks, pictures of the first run on a British bank in 160 years flashed across the world repeatedly did not inspire confidence in supposedly the world's premier financial centre.
Talk of nationalisation or part nationalisations over the weekend of more banks certainly is prompting me to sell what shares I have left. After a lifetime of frugal saving and "blue-chip" investment it is devastating to see 50% of the value of my investments wiped out in a year - I am beginning to think I would have been better off spending what I had and relying on the state.
It was even suggested this morning on the Today program that it might be highly profitable for the government to nationalise the banks and refloat them in 5 years at a huge profit. This would be further theft of investors' shares, including of course many pension funds. I assume at the BBC many people have final salary schemes so it will fall to the licence payers to meet the shortfalls!
Darling does not fill investors with confidence when he says he will support banks and then nationalises Bradford and Bingley. During his short speech this afternoon the market fell another 100 points - he and the BoE have done an excellent job in destroying confidence and ultimately our economy.
I'm not sure whether Cable in his musings on housebuilding is implying the country's major housebuilders should be nationalised. Where will it end - the Government owning all key industries?
This scenario is leading to total lack of confidence in the UK as a safe place to invest not only among UK investors but also among foreign investors - I wonder what the sovereign wealth funds which invested in Barclays think of the idea of nationalising Barclays?
The long term impact of shattering investor confidence will be zero or negative growth and declining living standards for years to come in the UK, which will be particularly hammered because of its dependence upon financial services.
A million more unemployed? - make it 2+ million more.
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I am tired of hearing leaders say "they will do whatever is necessary to ensure the economic stability, blah blah....." . The fact is they dont know what to do. Therein lies the problem.
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Friedlycard, 44: You're right, ordinary savers mustn't be punished (the irony, given that debtors got them into the mess in the first place!). BUt... most of the banks causing the trouble aren't retail banks, they're investment banks. Retail banks have got drawn into it now because they also need funding to run their businesses (as does the rest of the economy, which will be the next domino once Q3 earnings start coming out). If the IBs had been punished early and severely at the start, the retail banks that most mortals have their savings with would not have been affected - there would have been a few weeks or maybe months of confusion and then other institutions would step in to fill the niches in the market - that's what happens when you give the market as much freedom as you can. But the not-at-all cowboys in the White House etc. decided that no one was going to fail and everything would be fine, like it was a Disney film. And now we have a right mess. And now suddenly it's not so easy to let banks fail because they'd ALL (almost) fail if you cut the parachute strings, good and bad. So now we have massive wealth-destruction out there simply because no one wanted to take their medicine 12 months ago... very sad for the innocent people caught up in it, and outrageous that the guilty ones aren't in jail!
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It is a mess but never the less we should all stay calm. Like an hurricane or a tornado it could get worse and probably will but it will blow over. The ship of Capitalism will sail again perhaps not in its past form but sail it will. And remember the infrastructure is still there; the hospitals, schools, roads and we have water a scarcity in some parts of the world. A quote I read the other week I think is appropriate, "Buy on the sound of gunfire and sell when they sign the truce".
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Dear Robert,
This is an mirror image of the way the Financiers and Bankers created the Great Depression, and the money crisis through the thirties. it is an exact copy, of reducing the worlds wealth to unmanable assets. This will force dire action in the months and years to come AND it is a precursor to world war.This is what wars are made from, and it is right up a poilticians street to compensate for mass unemployment.Beware the Prophesy.
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Where has all the money gone? Simple. Back from whence it came. Nowhere. It never existed. It was mainly invented to keep the bubble endlessly expanding. But ask any astronomer - nothing expands forever. Eventually you will end up with black hole.
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I know at the end of the day this is just journalism, in other words (at least in today's world) a form of light entertainment, not to be taken serious. But I am still a bit disappointed by your last few blogs, bearing in mind how many people, including myself owe the little knowledge they have about these monstrous banking bubbles to large extent to your informatory skills. But todays misinformation about the German savers protection and now your declaration of the nearing of the end of the world are not very helpful to maintain your record. The markets fall, so let them fall for goodness sake! It's there good right to fall, as every child has the right to develop fever when it is ill. It's a good sign, as it means healing (or correction in financial terms) is underway.
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I feel a bit happier now that I have worked out where this will end...
The crisis is now being driven by depositors who are utterly determined to place their funds where they will be the safest. The inability of national Governments to exactly co-ordinate changes and levels of protection means that there is an inadvertent bidding war developing.
The end point will have all banks in the developed World in the hands of Governments and primarily backed by tax receipts - not deposits. Once this point is reached, I don't see any way back to the old system.
The faster we get to this point the better for the rest of the economy.
The economic slow-down is happening because people and businesses are scared witless by what is happening in the Banking sector. The faster we get to a stable equilibrium - whatever that is - the better for us all.
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Why do we keep saying we are going into a recession- whatever the statistics say- we are in one- rising unemployement-falling tax revenues- falling sales and falling profits- that is what it means surely. The glimpse on the horizon is that commodity prices are falling so the sting should be taken out of inflation and there will be sectors that keep expanding- green industries for example. Stock markets will continue to fall because the expectation of growth in value and dividends is non-existent. I think it will be made worse by tracker funds and computers that will not have been programmed to deal with what we are seeing now. What really matters now is stabilising the banks- then getting cost structures in banks right which will mean massive job losses- then having a good look at what our economic strategy should be- what we should support as sectors and reducing our dependence on financial services- and I think planning on less population growth and the social consequences that will bring. This is going to last for at least two years- past the next general election - and possibly for five years or more.I think what will kick start the economy will be a scheme similar to BES for environmental investment and to create ownership pools for housing so that we can help buyers come into the market but we will need landowners to reduce their expectations and for LAs to forget using 106 agreements as a source of infrastructure goodies. Also if we are to invest in these projects we must be willing to accept sensible returns even though there is risk.
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The fall will be tempered when we get politicians and regulators realising they have made a total hash of things.
Its hard to believe a politican when all we ahev seen is them feather their own nests at our expense, and all we have seen regulators do is close gates badly after everything has bolted. Stopping short selling has really worked....not!!!
Stock markets like water always find their own level and its getting close to the point where save for armageddon the market is nearing being called cheap, but that is the blue chip market. The 250 still unfortunately has further to fall.
The one thing we don't need is patroninsing claptrap from politicians or experts/consultants. The fall was long over due.
What we do need undeniably are fresh untainted politicians who don't spin rhetoric all day, and regulators with experience not graduates with an understanding of theory but no busness acumen except to tell us all what the theoretical rule book says.
When that happens we can be sure we are at the bottom
Just lets accept the party is over for now and logic and fair values have returned.
Think on the bright side its nearly Christmas
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Those who wonder where all the money comes from could do worse than read the Bank of England's website, and look into the early history of the Bank. Its founder, who was a Scot called William Paterson, told his shareholders that they would profit because "the Bank hath profit on the interest of all the moneys which it, the Bank, creates out of nothing."
There is a good case for blaming the American Revolution of 1776 on the activities of the Bank of England; and though it is deeply unfashionable nowadays even to have heard of Ezra Pound, he knew of this connection, and wrote in his Cantos about Usura (or Usury).
Whoever mentioned the contrast between the Western free-market and the Islamic system of finance has hit the nail on the head. Osama bin Laden may find that getting highly-skilled hackers into supposedly-secure financial computer systems, and causing ripples which spread outwards, will be a more effective means of spreading terror than suicide bombs, in the long run...
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Well done Robert! I have followed your blogs and I am certain I get more information from this than most government news flash or any other press.
...........and there will be a readjustment in the economic conditions of mankind so that in the future there will not be the abnormally rich nor the abject poor. The rich will enjoy the privilege of this new economic condition as well as the poor, for owing to certain provisions and restrictions they will not be able to accumulate so much as to be burdened by its management, while the poor will be relieved from the stress of want and misery. The rich will enjoy his palace, and the poor will have his comfortable cottage.
....The Promulgation of Universal Peace, p. 132)
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I think we are entering economic times that you only see once or twice in a lifetime.
I can't even bear to check how much my investments have decreased in value; haven't checked for months. Yet there is still something strangely exhillarating in living in "interesting times".
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To all the fractional reserve wallahs out there.
If the banks are creating the money through loans then why can't they just lend themselves few billion?
Clearly it's not so straight forward or they would not need the money markets, but then that points to someone else actually creating the money.
?
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This is a major correction no tracker fund with its "predictive stop loss selling trigger analysis" could have predicted. There is no modern precedent on which to base this present financial liquidity crisis.
Ultimately, we all suffer by inertia. So, painful though it is, we need to support ourselves, by redistributing taxpayer funds into the system, to allow us all to continue to work and produce goods and services. After all, the human population continues to grow, and there will still be demand out there. Payment for goods and services will just alter if the present monetary system fails.
We could end up with a barter system as we had several thousand years ago? Seems absurd? Well, just look around you now!
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Oh dear.
It's still well over valued though.
I thought 4500 would be the bottom about 1 1/2 years ago - this is about when I sold my stocks btw.
Since the credit crunch, the banking fiasco, the poor state of the UK power sector, add the huge burden of Labour red tape, Labour Green taxes and the PFI,,,
Maybe 3500, if Labour can actually do something like making UK industry more efficient ?
I don't buy it though TBH. With electricity 4 times more expensive in the UK than France and with all the Green taxes. Most likely below 3000 within 2 years then stagnation for a long time.
Other countries support their industry - the UK does nothing but try to destroy it.
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How laughable, the so called experts are utterly clueless. They didn't have a hint this was going to happen a month or two ago and now they have sure fire plans to fix it. How did they get so smart so fast?
"There's a mess in Europe too, because European banks were also seduced over the preceding few years into lending too much to cheaply to consumers and businesses."
Wrong, dead wrong. That would have been bad enough but what they actually did was infinitely worse. They poured hundreds of billions, possibly trillions into investments they didn't understand or they never would have considered them for a second. And what were those investments? Essentially worthless loans chopped up, repackaged, and sold as low risk high yield investments. What they were, were loans to buy real estate made to people who could not possibly pay them back over the long term. It is exactly what banks and stock brokers did with stocks before the great depression starting with the stock market crash in 1929.
So much for all of the MBAs, their credentials, their high priced salaries, their presumed economic and financial expertise. They haven't a clue. And what do "experts" now advise investors? Don't panic, wait it out. But at the start of the crash in 1929, that would have been exactly the right thing for individual investors to do.
How naive Europe ALWAYS is to assume that the problems of economics and finance which appear to radiate from the US will not affect them. Invariably, they feel the greatest effect and this time there is good reason to believe it will be even worse than usual. That is because, normally the economic cycles and factors which affect the US only affect Europe indirectly as the US economy slows down. This time Europe is up to its eyeballs in the same mess.
The governments will guarantee depositors will get their money back. How? Only one way, print lots of money.
ATNotts #9 "Nationalize the entire banking system."
Guess what ATN, the US just did that and it didn't work. When the banks are bankrupt, it hardly matters whether they are owned privately or publicly.
My favorite mavens are the people who say this was all due to greed. Lesson one in economics 101, without greed there are no markets, period. There is greed and fear and that is all. As soon as I hear someone say this crisis is due to greed, I know that they do not know what they are talking about. Greed had nothing to do with it, stupidity and amnesia had everything to do with it. When all of the restrictions that kept the US from repeating the great depression of the 1930s were removed, this was inevitable. And as for Europe copying the US's mistakes, well it's a case of monkey see, monkey do. They were going to be just as smart as American money managers. Follow me, the edge of the cliff is right this way.
BTW, environmentalists who would impose CO2 emission caps should consider that what is happening to the world's economy and what is coming as the result of the credit crisis is barely a taste of the economic calamity that would befall the world if they got their way. And it won't be a question of just no jobs and high food prices, if the US puts a carbon cap and trade system into effect and farmers sell their credits to electric power companies as they likely will, it will be a case of no food at all to feed the starving billions in the developing world. The answer to global warming is drastic population reduction especially in the developing world, something they will not even discuss. These two issues are inseparably linked.
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hbos and all the lenders signed up years ago to the banking code.its not worth the paper that it is written on.ie the code clearly states in one of its clauses.
1.we will lend responsibly
its obvious that no bank in the uk that has subscribed to the code has read this one ,or maybe just ignored it.
the banks do not deserve to be the custodians of our money,they have played the casinos of the american sub prime and lost.and now we will pay the price.how can we bank with these so called institutions when they only save gaurd £50000 of peoples money.my bank adviced me to put my savings in a 12 month fixed bond 6 weeks later they were getting bailed out in a rescue package great advice eh.
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i'm so disgusted with this bailout, with the whole way congress and bush (don't even get me STARTED on how he got elected) handled this. the crisis was well over a year in the making and yet, they waited and scared people into going along with this nonsense. absurd.
i hate to see it happen, but i think our economy needs to crash and burn and we rebuild from the start. we're a credit nation and this inflated bailout is just the beginning of the troubles to come. it's not going to stop foreclosures and not going to 'trickle down' as they claim it will. we'll still have massive debt, except now it just won't be the public, but the banks too. sickening....
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~13 idea is good. But what effect would it have on those who choose to trade anonymously (sovereign funds?). How open would it be in practice?
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Mr peston, quoting sources said within 24 hrs chancellor will anounce deposit guarantee to the tune of £100,000 .
I have not yet heard it.
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Can't help thinking Peston's reporting is as much pure speculation as anything else. Tell us just the facts Robert, leave the speculation for the more idiotic bankers. Hopefully at some point after things quieten down, a few big corporate heads will roll. Bring on the blame game!
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Until the banks start lending again the level of fear, leading to panic, will rise. It would only need a big non-banking, High Street name to go into administration for the market fall to become catastrophic. In 1974 Burmah went under and the market fell by 75% in less than a year - I know because I was there in a stockbroker's research department. The banks won't start lending to each other until the toxic loans are identified and ring-fenced.
Recapitalisation is also necessary. In the present circumstances the equity issues would need to be underwritten by the UK Treasury. If the existing shareholders don't subscribe they will be diluted and the Government, on behalf of of the public, will hold a stake in the company. On a view, these shares can be sold, at a profit, when market conditions allow. There's no time to lose - a market crash is lurking nearby.
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Somebody posted elsewhere, probably tongue in cheek- why don't we just do what the Russians do and suspend trading when things start to slide badly? Thinking about it, if there is a run on bank shares, would it not be wise to suspend trading in those shares before it gets seriously hairy rather than when the bottom has fallen out of them?
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this makes me remember the film 'airplane' - the bit where all the passengers are running from gate to gate for the plane-imagine instead investors running from bank to bank.......!
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It?s pure spin. The real cake is of a given size, however you measure it, and that?s why it really doesn?t matter whether you print the money to refund the banks or let the wreck sink, either way you pay in inflation.
At another level, if capitalism red in tooth and claw is being rejected in favour of socialism, then we face a form of power vacuum. The exercise of popular capitalism has failed, Tesco?s don?t sell shares ? and that?s why public confidence in the entire shebang just might be going spung, not just in the banks, but in the markets too. It?s the result of social sense ? it just might be common humanity is finally rejecting the Gordon Gekkos of this world, regardless of the cost.
There?s a bigger problem, too, what happens when share values start tripping medium- and long-term loan covenants in larger companies? Would you fancy having to refinance a hundred million in these markets?
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I am as scared and astounded as the rest of the planet right now, but just wonder if we are truly approaching the bottom, but, want to know where all the money is going if not into stocks? where is it as the banks deny all knowledge.
I am sick at the thought of what lies ahead for the families and decent workers of the world.
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I agree with 99, this will end when the whole thing is taken out of the hands of banks and bankers and taken over by the government. Let us slay this dragon of anti nationaisation once and for all, it is no bad thing in a crisis, it will allow co-ordination. It is the only way out of this mess
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The point about this capitulation thing, and it's true the article alluded to this; is like "confidence" it's a bit of well known, and widely discussed, concept but is totally impossible to pin down and be confident of the meaning.
People go on about "talking ourselves into a recession" and "destroying confidence" as if they believed that spin and PR really DOES work...and all it needs is a bit of positive (or negative) thinking to correct the reality of things.
The Titanic disn't sink because everyone on board suffered a collective failure of confidence in the ability of the ship to float--- it was the failure of the ship to float destroyed their confidence.
Equally you may as well decide Tottenham Fans are all stupidly talking themselves into relegeation...rather than watching the goals flying in and calculating on the available evidence that IF this continues..THEN relegation WILL happen.
I have had some good, interesting and illuminating discussions with friends over the years, of differing views to my own, about their Religious beliefs about, let's say, life after death, or no life after death----but I never ever felt I was "talking myself into dying" during them.
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So what did the EU leaders get up to at their summit ? They don't seem any better organised or coordinated this week than last and at least in the UK are still waffling instead of producing concrete actions.
Maybe it was Mrs. Sarkozy holding a musical soiree that gave them the excuse for time off.
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Ah well, they've brought Mandy back, surely, the crisis is deep enough now to bring back Blair? He can reassure the markets with compelling evidence that there might be only 45 minutes notice of Iraqi weapons of mass economic meltdown being deployed.
On a more serious note, we need DECISIVE action. Darling and Brown sounds like a successful music-hall comedy duo except they are neither successful or funny. For Chrissakes what decisive action are they going to take and when??
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Just keep cool. When a bubble of such biblical proportions deflates it obviously causes a lot of noise. But just be confident (as you were for so many years, without reason). This is not the end of the world, although you may be hoping for just that.
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#78
"The UK will adopt the Euro for its own protection sometime in the next 2 years probably as the first act of a Tory / or National government. "
"Reganomics and Thatcherism will be seen as the direct cause of this depression and a new more regulated financial World will result.
Will those two not cancel each other out, if Reganomics and Thatcherism is seen/proved to be the cause (which I believe they are), surely the Tories will be out of power in the UK for decades - just as the Liberals have been for the best part of a century? Of course the far right might replace then - this is getting hairy...
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BAIL OUT TEMPORARY ANAESTHESIA UNTIL POLITICIANS RE-ELECTED
Bail out the banks or politicians?
The amount of money to bailout is only a drop in the ocean, it is a temporary measure of induced anaesthesia. But once the politicians are re-elected, that is the time when You! the Peasant Taxpayer and Homeowners will feel the pain.
What is the real meaning underlying Brown and Darling?s use of eloquent words such as: Confidence; Stability; Liquidity; Security; Securitisation; Recapitalisation; Nationalisation; Global ? Well, they simply mean, that You! the Peasant Taxpayer will pay for the Greed of the unscrupulous Fat Cat Bankers.
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Inflation will pay for all of this. The option to print money is the nuclear option and the little red button to fire up the printing presses is about to be pressed.
In 10 years time your house will be "worth" twice what it is now and your outstanding mortgage will be able to be paid off in a few years due to the high salary you will be earning. The fact that a loaf of bread will also cost twice what it does now is also a little worrying though.
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#86 TerryNo2
on Thatcher as the Cause.
Mrs thatcher's economic policy included de-regulation of most things, abolition of exchange control, with a strong penchant for self-regulation combined with the worship of the financial markets. She introduced the present regulatory regime. Do you also not recall that she took away the grants to organisations such as Cambridge Econometrics who warned of the consequence of her de-regulation. This I think that it can be properly argued that she was the cause of the present crash.
Of course those who came after her are culpable, but most of them were elected on the basis that they would carry on with her policies and they did just that.
Also note that Reganomics can be reasonably characterised as Thatcher's economic policy combined with taking long naps in the afternoon.
The problem has been that after Thatcher and Regan subsequent 'leaders' on both sides of the Atlantic were so in awe of the financial markets that they were unable or unwilling to regulate.
I therefore submit that my argument that Mrs Thatcher was/is responsible is well founded on the facts and not as you state illogical.
I do however take the point that many organisations in recent years have paid lip service to regulation rather than actually regulating, but that was not entirely their fault as they started out with the concept of light or self regulation as the only way to run the market, but it was not my intention to catalogue the many subsequent omissions but to fairly identify the origin of the attitude to regulation.
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Total collapse would be preferable to stabalising the system then allowing the the individuals that have caused the problem to be restored to their positions. If our elected representatives do not regulate in a way that avoids a repeat of recent events then they will see the elimination of the partial representative democracy in which we live
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I'm no expert on financial matters, but as an outsider it seems fairly simple to avoid this crisis becoming a depression. As far as I can see the problem is this: Governments around the world keep giving money to banks in various forms in the hope that they will lend it to each other and companies and individuals outside of the financial sector. They won't. As most of these governments have privatised at least one bank each, why don't they just use these entities to directly loan to the wider economy, and let the banks stew in their own juices. This would be both fair and effective.
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Some people here seem to be only looking to you Robert, for their information, they do not appear to research.
This is the exact mentality that got us into this problem, leaving it to others will always get us, the public, into the mire.
Brown and Blair ought to be thrown in jail for removing certain legislation and making it easier to get credit with no questions asked.
Raise those interest rates and make people save before they buy that stupid huge car they really do not need.
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how about this suggestion.....give all the stock markets around the world a week off? Suspend trading, give everyone a breathing space and let the hysteria and knee jerking die down. Then maybe SOMEONE with a clear head will get a grip on things.
Alternatively, let's have a global bank holiday for a week-we need sense to stop all this panic!
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When l was investing 5 years ago the NYSE was pushing through the 10.000 level and it was being hailed as the physcological barrier to greak in those boom times.
Today the market have passed back through the same 10,000 level and we are talking "capitulation" and finacial crisis.
Let me see, in 2004 the 10,000 level was something to marvel and today, a mere 4 years later, the press marks the same 10,000 level as the edge of the abyss.
We are talking about the same "10,000 point" mark of a share market Index? The stock market has it's corrections once every 10 years and the only thing that changes is the extent of the news headlines are getting more absurd each time.
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#101
"What we do need undeniably are fresh untainted politicians who don't spin rhetoric all day, and regulators with experience not graduates with an understanding of theory but no busness acumen except to tell us all what the theoretical rule book says. "
The first might be a problem, there is only one thing that is worse that a politician spinning rhetoric all day - an inexperienced politicain...
I agree about the second and it might even end up with the Govt. asking some retired 'old-school' bankers and stock-brokers to come back to work in an advisory role as there are now two generations of financiers who have been brought up only knowing the monetarism principles of finance.
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Hands up everyone on the planet who has lost any of their personal savings held in any bank since this "crisis" started on September 13th 1997 when Peston did his hyperactive monkey impression to help kick-start the run on Northern Rock. No hands? Thought not.
No government in the developed world would ever let savers lose out. It's not going to happen, however much you want it Robert.
I've really had my fill of BBC News report after BBC News report featuring your overexcited idiotic style, telling all that every little tiny event is momentous or ground breaking or extraordinary or has never happened before or whatever.
YOU ARE A NEWS EDITOR FOR THE BBC NOT A CONTESTANT ON HAVE I GOT NEWS FOR YOU.
By the way, you are supposed to be the reporter, not the story, Robert. I am beginning to think you believe you are the story. A dangerous delusion.
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There ia a Himalyan mountain of dept out there and no shuffling the deck chairs is going to make any difference. The mountain has to fall down by way of bankruptcies until the level reached is such that the economy (thats you, me, businesses, corporations, central banks etc) can service it. And then it will be a slow business to get things back up and running again. We are talking about years. RP's blogs are good reading, keeps us informed as to where the chairs are day by day.
FTSE below 2000 and DJIA below 4000 at least.
Best of luck
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#101
You ask for reality whilst requesting the impossible!!!
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..and where is the Bank of England? The interest rate decision this week will be uinteresting to say the least, you have to wonder what our so called Central Bank is actually doing.
It could be that they're working on the 'contingency plan'. Well, maybe solving the actual problem quicker might be the better 'plan'. They have been too slow to work the problem or maybe they don't want to. Who knows.
This Thursday we need a full point cut, even if it doesn't work it's way through to the consumer immediately. It sends the right signal of 'doing whatever is necessary'. You do have to feel sorry for AD. The US create a big mess in the global back yard and only sweep it up their own. European leaders need to very quickly get their collective acts together now. US ploicy will be on hold now until after the elections. At least GB and Sarkozy are trying, but you have to wonder about the others...
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Today my daughter told me the car dealership she manages is looking only as far as Christmas to see an improvement in car sales. She is a single mother with two young children and a big mortgage.
I could not bring myself to tell her that they are only trying to move as much stock as possible before the banks withdraw funding after Cristmas.
Only one of many who will have to bear the human cost of this evolving tragedy.
Is it any wonder I would have liked to wipe the stupid grins off those Labour faces in Parliament today?
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Robert,
You are a smart guy and your views are excellent.
Can you spare a thought for those of us who don't have nerves of steel and who find all these events in the financial markets very unsettling.
Could you, like a football player, try and take some positives out of the situation?
The people involved in this 'crisis' including yourself are highly intelligent, how about focusing on the answers rather than exacerbating the problems.
However grim it is and will get, it is only temporary. In a year's time, I would have thought it will have passed. Is there a risk that influential commentators like you could prolong it by dwelling too much on what's not working rather than highlighting in a balanced way what is working.
Thanks
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Calm down dears it's primarily a media event.
Perhaps the banking crisis or whatever it's called would simply go away if Robert Peston were to spare us the angst ridden frowns and retire gracefully to the country.
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Robert when is the book coming out...or the film or the play?! Events seem so unique and dramatic that there must be some opportunities at a later stage for the story to be told in full... Indeed a summary of your blogs could be rushed into the shops for Christmas, whereupon, I'm sure, it would be a best seller!
Almost surreal, these times are captured so well on your blogs. Please keep them coming.
Thanks
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Concerning Denmark taking unilateral steps to reassure savers, readers of this blog may not know that despite its small size (population a mere 5.4 million) Denmark has an unusually large number of high street banks - well over 100 of them dotted around the country, compared to say bigger neighbour Sweden which has just 14 such banks. Many of the Danish banks are tiny concerns, but much of the population has their money in them, so you can guess the level of nervousness around the country right now. I think the government has responded to this by throwing the state safety net out, although when interviewed on TV today the PM seemed to me to be suggesting that it was more about following Ireland's move in order to help Danish banks ensure access to foreign capital.
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In a recent worldwide poll, Marx was chosen, by an overwhelming majority, as the philosophers philosopher. Would he , given the chance, and bearing in mind recent events, have described Hayek, Friedman and Nozick the fundamentalist free- market gurus as novices?
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#88, you don't seem to know a lot about bonds and CDS. Junk bonds have a high yield because of a high probability of default. CDS products are priced based on the probability of default.
Buying credit protection against a junk bond is going to be a bit like a 17-year-old with 10 points on his provisional driving license for drink-driving trying to get insurance for the Lambo that Daddy bought him. He'll find a quote somewhere, but it won't be cheap.
More seriously, the credit protection premium is normally higher than the bond spread over Libor. Sometimes that reverses, but it's not normal and it's normally arbitraged out of existence very quickly indeed.
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Oh dear. Why is the world so naive? This is a crisis which is generating its own momentum. Here we are talking about a stock market crash on Wall Street, when it is now around the level it was 5 years ago. It was not in bad shape then. We have bankers and economists running about like headless chickens talking doom and gloom. By Easter, we will all be asking ourselves what all the fuss was about. We (and journalists in particular) should be keeping our heads cool and looking at the real facts, not the emotive ones. We don't even have an oil shortage and the high price (which we will have to get used to anyway) is even now only having a marginal effect.
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#134
How many have lost money due to a bank going down?
No one has, because we know what is happening, if the BBC and Mr Peston had done as bankers have been doing for the last 20 odd years - sweeping the debt under the carpet whilst hiding their fantasy money in with the kids monopoly money - who know who would have lost what when NR suddenly did a "Lehman's"?...
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To the Tory/SNP types who keep saying that GB/AD are to blame - get real. If Mr Brown had told the banks 2 years ago ease up on consumer/buy_to_let lending the Tory/SNP types would have moaned all the way about the effect on their Northern Crock shares etc.
What we need is a long game plan - lets get making things again. Shipbuilding anybody? Steel mills? Currency - now is the time to get into the Euro - this will give us stability in a large market.
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How can we have economic stability when they continue to throw economic weapons of mass destruction all over the place? These massive shifts and changes are like rocking a boat that was already sinking. I'm surprised it held up this long.
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140
"it's primarily a media event"
...and no doubt the flying pink elephants will be along shortly...
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Cheap x-mas ski holiday in Iceland anyone?
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I still think the population at large need to be told where themoney will come from to pay for the bailouts and commitments underpinning the Savers guarantees should the banks fail - as they seem to be doing at a rate of one per week per country. And its only the beginning.
Come on own up!
SDS
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What are we calling it? Black Monday has already gone. What about 'Brown Monday' as a tribute to our leader?
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#127. I'm afraid that to cast the blame for the current crash on events over 20 years ago is so far from the reality of the situation as to almost make it impossible to craft a reply to.
Isn't the cause of the present crash unbridled lending during a period of low interest rates, fuelled in part by greed and a regulator that couldn't cut the mustard? A fact evidenced by its failure to understand what its constituency of regulated firms were really up to?
Where have the regulator, the Treasury and the Bank of England been as debt spiralled amongst people who at the mere occasion of a sniff in the financial markets meant they could ill afford to repay them? And what's that got to do with Thatcher? Presumably the Gordonomics boom was due to Thatcher too over the past 11 years - and everything else that may happen over the next 20 years.
Wasn't it Clinton who talked about "the economy stupid"? And wasn't that at a time when home ownership was being heavily promoted in the US amongst low income groups? Did Reagan instigate that? Of course not. It was Clinton.
The UK's regulatory regime fundamentally changed in 2001 with the creation of the FSA. Did Thatcher instigate that? Did Thatcher instigate the shutting down of specialist regulatory agencies - the Securities and Futures Authority and the Investment Management Regulatory Organisation? Of course not.
Would this crash have happened without the changes to the authority of the Bank of England and the demolition of the former regulatory framework underaken in the name of Gordonomics? Who knows. Would it have happened if we stayed in the ERM, if we entered the Euro, if we didn't have the 1992 recession or the 2000s boom? Would it have happened if Kinnock won in 1992 or Blair lost in 1997? What about Iceland - is she to blame for the mess there too?
Milk-snatcher Thatcher is clearly an easy target. It doesn't mean that the blame can be pinned on her for this current mess . Convenient? Yes. Falsely based? Absolutely.
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@roughashlar
They can print all they want. It won't work because the banks cannot or won't lend and wages will not rise.
We are in check mate.
Free trade will keep inflation dead in the water for working class citizens where all the debt overhang is. There is no way out of this unless you want to directly hand every citizen a several hundred thousand dollar check to spend. The banks cannot lend anymore to consumer because as a whole consumers are insolvent!
You can't make another bubble! This is THE bubble.
1. Banks will not lend
2. Wages cannot rise
It is check mate. We are actually in deflation and cash is king! Deflation destroys fractional reserve systems because no one can service the debt.
Ironically all their talk of free markets and free trade is what won't let them push inflation to pay off the debts. They set themselves up for check mate. We are simply along for the ride.
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I ASSUME THE MODERATORS FIND MY OPINIONS TOO CONTOVERSIAL TO POST PITY AS I SPEAK FOR MY SEVEN HUNDRED PLUS STAFF THEY WANT TO KNOW WHO WILL PAY THEIR SALARIES WHEN OUR TWO BANKS GO DOWN WITH 72million OF OUR MONEY
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#152
What should we call today?
"Mad Monday" or perhaps even better (because it's very close to the truth), "Maggie's Monday of Reckoning"...
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More irresponsible reporting by Mr Peston on the 22 pm news tonight.
Much of the report was filmed during daylight so probably out of date by 6 hours by the time it was presented at 22.
Wall Street had been down over 700 points in the early evening but rebounded by nearly 500 points in the last hour.
This of course messed things up for Robert Peston with all his graphics and gizmoes at the ready for doom and gllom at 22 but it did at ready not happen.
Why did not Pseton just go on air and file his report based on the full day and evening not what had happend 6 hours earlier.
The markets can only be reportedin real time not 6 hours lat as with Mr Pestons report on the 22 news.
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#153 TerryNo2
I am sorry that you cannot, or will not, for what ever reason accept that the lack of regulation and the philosophy underlying the lack of regulation has any causal relationship with the current problems. Without the false monetarist 'gods' of the free-market this problem would not have happened.
Thatcher was the first Prime Minister to adopt the (false) monetarist philosophy, and then Regan followed her (but sleepwalking). Do you not recall the philosophical clashes over the monetarist attitude to regulation whereby regulation was found by them to be not required. This marked the start of the current cataclysm. She, Mrs Thatcher, started the process and is thus the prime culprit if we are to allocate blame.
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#153
Thatcher changed the rules, she created the financial "Big Bang", she allowed deregulation, she created the ideology of the 1980s, she even exported it to her friend Reagan. The facts are, if those changes had not occurred it's very unlikely that monetarism would have seen the light of day beyond the borders of Chile - the only country until the UK to used such a (flawed) economic policy.
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#152
"What are we calling it? Black Monday has already gone. What about 'Brown Monday' as a tribute to our leader?"
Judging by the faces of some of those traders it was more like 'Brown trouser Monday'.
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All the European leaders are now singing from the same hymn sheet, even if the hymn is "Abide with me".
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Re 134.
I write on behalf of some of the people from planet earth who have lost personal savings in "any bank since September 13th 1997"
There will be many of them not least in Argentina. Some of them may have trouble in complying with your request to raise their hands as along with their money they also lost their lives.
Interesting to note that you request votes from all inhabitants of the planet but limit your (no doubt very valuable) reassurances to citizens of "the developed world."
...and you berate others for adopting an "idiotic style" whilst demonstrating a casual ability to match style to content. Still at least you have the capability to recognise that some delusions are indeed dangerous.
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The famed and revered Wall Street analyst Art Cashin said this evening we are in for a bull run this week, a run that will last at least a few months, read CBNC not BBC.
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In the morning watch CNBC or Bloomberg for the Wall Street futures this will give an indication as to what Wall Stret will do which will effect what European markets will do.
Dont listen to the radio or any other channels as its the futures that matter.
Could Mr Peston on Tuesday please reporet the markets in real time not 6 hours or more late.
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Soapbox time, I've been thinking about what has actually happened in this whole crisis, bearing in mind at all times that any currency is merely an attempt to agree on a standardised measure of value, and as such has inherent time inefficiencies and is distorted by human error, or to put it another way that value, and hence to an extent the money which represents this nebulous quality, has a significant degree of subjectivity.
Essentially I dont believe that value comes and goes in short periods of time in the global system, I think it gets re-apportioned geographically and along numerous other lines of division and fluctuates a bit, but broadly speaking I think it may be acceptable to consider the globe a closed value system in the short term, hence although currencies and exchange rates change and stocks go up and down the stuff that all of this is trying to measure (value) is still there somewhere staying more or less the same, the sum of accumulated desires and needs offset by their opposites (unwanteds and un-neededs) of everyone everywhere.
In this context the problems we see could be viewed as a result merely of timing differences and re-apportionment of wealth (rather than wealth creation and destruction) the timing difference comes from banks and enterprises breaking rule number one of business school by not ensuring sufficient working capital to cover business cycles (which although longer than usual are still evident in loan renewals) and apparent value has been created, recorded as profits in financial instituations and mortgage lenders, sucked out of the system at one point (what has the total remuneration to staff and stakeholders of all financial institutions been in the last couple of decades?) reinvested in housing, assets and forex maybe adding to the spiralling housing and commodity bubbles, then when the mis-attributed value dissipates public debt is created diluting the currency but allowing those who "earned" profits to retain their crystalised gains, represented by a greater proportional ownership of assets and money.
Is this conspiracy theory-esque or plausible?
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Please note this debate tarted at 3 49pm so is 7 hours out of date.
Its yesterdays newspaper stuff.
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DEAR MODERATOR IS IS SO CONTROVERSIAL TO SUGGEST OUR GOVERNMENT WILL HAVE TO PRINT MONEY TO COVER THE COLLAPSE OF OUR BANKING SYSTEM THAT I HAVE TO BE CENSORED
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As the water reaches up beyond my chest, I puzzle that I have seen no mention in our media of China being similarly affected, and wonder if the tiger is waiting in the wings to swoop; - or even had a hand in manipulating this financial crisis?
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SO WILL MUGABE PRINT THE NEW MONEY??
I HAVE THREE FACTORIES IN CHINA SO I COULD PRINT THE MONEY.
I JUST DONT KNOW WHAT I CAN PAY MY STAFF WITH.
THEY DONT LIKE STERLING OR EUROs.
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IVE SPENT MANY HOURS IN THE LAST TWO MONTHS MOVING OUR CAPITAL/CASH FROM BANK TO BANK COUNTRY TO COUNTRY TO ENSURE WE DONT END UP WITH A TOTAL WRITE OFF.
AS THE BANKS ARE PATROLLED BY THE GOVERNMENT AND THE FSA /BANK OF ENGLAND HAVE NOT DONE THEIR JOB IS IT TOO MUCH TO ASK TO HAVE OUR CREDIT FUNDS GUARANTEED????????????????????
I SHOULD BE RUNNING THE BUSINESS GETTING ORDERS TO KEEP OUR FACTORIES BUSY,PEOPLE EMPLOYED.
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LABOUR NEW LABOUR SPEND SPEND SPEND AS IF YOUVE WON THE LOTTERY THEN SPEND SPEND SPEND AGAIN AGAIN BECAUSE YOU MIGHT WIN AGAIN A SECOND TIME A THIRD TIME>BUT PLEASE GOD NOT A FOURTH TIME.
JUST REMEMBER ALL OF YOU WHEN YOU CHECK THE BILL AFTER THE VAT THERE WILL BE A NEW TAX CALLED BrDaTAX
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#158
err Thatcher isn't in power. Brown is.
Labour has had more than enough time to do what needed to be done.
Blair and Brown have failed not only this generation but future generations to come.
#166
err who cares what CNBC etc say. They don't make the markets they just report them, or in other words what has already happened and in a style of their choosing.
Did CNBC or Bloomberg predict this event ? No they didn't. Yet people knew this was coming some 3+ years ago, it was so obvious. A lot of people have sold up assets over 1 year ago.
Good news, bad news, Robert Peston becomes Mr Optimist or Mr Pessimistic. Optimism or pessimism has NOTHING to do with anything - this is business. Profits will fall therefore shares will fall. The only question is how much.
Personally I will be making judgements on a 6 month to 1 year view. Not the current news.
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You couldn't make this up. I tried copying an article by Caroline Binham from Bloomberg entitled "Financial Companies' Directors Will Be Interviewed by FSA", but it keeps getting rejected.
In the article, CB sets out the FSA's new radical approach to deciding if senior managers and non-exec directors of banks are "fit and proper" to fulfil such roles. Their bright new idea is, wait for it, to interview the people banks propose to appoint to such roles.
This is a response to a recommendation made by the Treasury Select Committee, which is that it really would be a good idea if at least one of the Chair and CEO of a bank has relevant financial services qualifications. At Northern Rock neither of the people in such positions had such qualifications.
It's a pity I couldn't copy CB's article. I thought it was a bit of a laugh on a bad Monday night.
It might be interesting if RP could get his sources over at the Treasury to comment on this one, as they are responsible for the Coco the Clown outfit which is supposedly protecting the investing public. The mess we find ourselves in is perhaps a bit easier to understand when you read things like this story.
For those of you who fancy a change from responding to RP's blogs, think about writing to Sheila Nicoll, the FSA's retail firms director. Two weeks ago she apparently said:
"We expect and hope that those we interview will take up their new roles more conscious of their regulatory responsibilities."
Perhaps the Beeb can ask Ms Nicoll to explain how the FSA's performance displays any appreciation of its own responsibilities before it opines on the performance of those it has so far failed to supervise.
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Would poster #170 not be better getting back to running his three factories that he appears to be itching to get on here and tell us about instead of wasting his time complaining about the moderators not printing his posts?
Anyway keep up the good work the rest of you posters I'm learning a lot about this economic situation and human nature as well.
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excuse me all, I may only have a simplistic view of things (my degree is not in economics, but I was a bank manager in the good old days!), but has anyone seen the slight drop in RBS credit rating? Happened after FTSE closed.
Another couple of random thoughts....when will insurance companies start to wobble and if banks withdraw funding after Christmas dies this include debt factoring/invoice discounting? This system helps cash flow for many companies.....
'now is the winter of our discontent' I reckon!
Suggestion-how about 'Manic Monday'....
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The current paradigm may be broken. If the footsie drops below 4200 then it may be time for government to effect a stop loss.
Could this be time to nationalise banks ?
I don't mean pump equity into the current distressed entities. This will only result in the "dead cat bounce" prior to investors withdrawing tax payers cash.
No, if the market really has failed ( by this I mean we agree that free market bank lead capitalism doesn't work ) then it could be time for nationalisation of UK banks.
This would wipe out share holders. But the benefit goes to depositors, bond holders and the greater economy.
We still have a functioning economy. Private companies ( outside of banking and energy supply ) are efficient and effective at providing goods and services.
If the new paradigm is to nationalise banks so be it.
Mutual banks. Mutual building societies and state backed capital could supply the bedrock of the next economy ?
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last random thought of the night-if u won £10,000,000 on the lottery, would the bank the cheque was drawn on be able to honour it, and is there enough room under your mattress for all that cash?!!!
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#172
...and had they changed anything what would people like you have said - oh look, Nu Labour, going back to it's socialist roots, told you so' - or words to that effect...
Still, history will be the judge (not posters on a blog), we can't change the facts of history, Thatcher introduced monetarism to the UK - FACT - QED.
As for predictions, many predicted this event way back in the early 1980s, OK they were vague on just when but they predicted it all the same as they knew that no economy can survive on fake money alone - lets get back to actually making stuff rather than the discredited shame of the derivatives markets etc.
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ps: I think u r brilliant Mr Peston-clear explanations for the common man. No fancy language or odd words purely for those in the know! You must be working incredibly hard at the moment with everything happening at breakneck speed-thank u so much for your contributions on TV and here.
You deserve a payrise!
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Something big has to give - just to restore order. A good example are the people banging on about how house prices grew 100-150% earlier on, so a 25% drop now is no biggy. But - nobody's salary grew by that amount. (Least not us normal folk).
So ultimately, that rise in house prices was entirely due to banks/building societies allowing people to borrow more and more money.
To top it all off - its fairly obvious that the vast majority of the West's growth in consumer spending is again funded by credit. Its rather well known that loads of people have a lot of debt on credit cards. If that credit wasnt there - would commerce in the UK really have grown like it did since the mid 90s?
Where did the money go? Well I reckon a lot of it is tied up in people's overly expensive houses, and the endless new gadgets that reside in those houses. There is no such thing as a luxury product anymore - this will soon change.
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#108 (MarcusAureliusII)
An 'environmentalist' is surely someone who believes that, just perhaps, this planet, our only home is irreplaceable and we ought to look after it. That all this so called 'wealth' which is being created, lost, found, multiplied and lost is as solid as mist. Clean air, drinkable water, food and shelter are REAL, not CDOs and all this financial sleight-of-hand. Of course they do affect what happens in our society, but ultimately the entire capitalist (or other) system could disappear tomorrow and the drinkable water, life-supporting climate, food, animals etc. would still be there. Lose those and you lose EVERYTHING and then you wouldn't care two hoots if you had £10bn sitting in your bank account. As they say, "You can't eat money"
I guess I'm an environmentalist. What's your alternative?
#124 (Boilerplated)
In the UK, it doesn't really matter what a total mess you make of anything in your term of office, as voters in the UK are programmed to vote in either a Conservative or Labour government to the exclusion of any other possibility. The reality is that, whatever choice it may seem like technically in the political landscape, Britain operates a two party state who just swap places from time to time. And now maybe it's just one party that keeps changing outfits and hopes to make you think that there are two
The UK channel hovercraft service was closed down, not because it was not making a profit, but because it wasn't making enough profit. Give the banks and other institutions the ability to make more and more and more profit and they will do it. Is it any wonder that we are now seeing the logical result of such an impulse. We in the West (and increasingly, the East) seem to have reached a point, where when it comes to money, status, profit, food, drink and so on the idea of 'enough' doesn't seem to exist any more. Sufficient seems a meaningless word in a collective mentality wedded to endless growth of everything. We have a minimum wage; can you imagine the outrage of suggesting setting a maximum wage of, say £50,000? Just remember the barely concealed horror of journalists when sales figures look a little down. As Bush said after 9/11, "keep shopping". It doesn't matter that you've got all you could possibly ever want, just throw it away and buy more. Then do it again. I suppose basically I come back to my first point to #108, unless we give this planet its rightful place in the the way we run our world and learn how to relate to it and each other properly, the outlook for humanity with this globalised, short-term and energy-obscene lifestyle doesn't look very good ...
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More doom an gloom eh?
I think some bank stocks look quite well priced now. :-) You may think me mad, but the bounce will come and the trick is not to hit the very bottom (or the top if you are selling) but near enough.
May wait till Wednesday though. See what these Europeans do.
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#176
I like the idea of mutuals - but in essence you are just changing the name and not the business.
Any system needs good regulation to keep corruption low - there will always be some corruption. The need is to stop it before it gets out of control.
Given we have a big government at the moment we should have good regulation.
But we don't ?
If regulation fails again we are back to square one no matter the system.
Before you can really say what should be done you need to know the whole picture. Now given that you have GB saying "Prudence" while we have 625 billion pounds being pumped into the UK over 7 years then I doubt you are gonna get any straight answers.
Add in regulators, auditors, banks, estate agents, share holders and the media - all of which never picked up on the fantasy and decried it.
My gut feeling is that this break down is a failing of western politics. There are plenty of people who know things are wrong - they just are not in a position to do anything about it.
How can you get all of the groups above to recognise their failings, admit they are not fit for the task and commit to changing the system ?
What will step into this political vacuum I wonder ?
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promise this the last tonight!
Does anyone remember a French finance minister saying France wouldn't be affected as their banking system was better than anyone elses?
Or is it all a dream?!!!!!
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We have nothing to fear but fear itself!
Let us hope that Mr Obama's rhetoric can match Mr Roosevelt's and US government investment will be industrial as well as financial.
Hitler transformed a ruined German economy by investment in autobahns, fighting machines and uniforms. The US and UK economies recovered from depression during a war to destroy Hitlers investment. Post war recovery was thanks to US investment again.
The point is economic recovery depends on large scale government investment (also known as Keynsian economics).
It need not be tanks and guns, - clean coal technology, alternative energy sources and nuclear power plants will give us energy independence and stop all the pounds, dollars and euros accumulating in Arab and Russian hands. (Also avoids climate disaster)
It may be tax and spend but at least we will have jobs, the mortgages will get paid, the car industry etc will survive and dare I say it even banks may have a future.
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In reply to post 15,
Many people , myself included, tried to warn people about the folly of believing house prices would keep rising due to supply and demand. They were rising becauses of cheap loans enabling people to afford moreoeless any price. People just did not want to listen. They couldn't even be bothered to look back to the early 90s (the last housing crash).
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So, all the governments in Europe will ensure savers money in the banks is totally secure. Your £50,000 or whatever is 100%safeguarded - yep, sure thing! Except that because the financial crisis originated in massively inflated house valuations, the value of your £50,000 savings - in real terms - will eventually have to be devalued by a similarly massive amount!
The big loser in all this is the value of money itself!
The same sort of chaos has happened in English education in the last 20 years. Grade inflation means that about 50% of students get an A or B - wonderful! - but that means the value of the grades has been halved compared with 20 years ago.
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In reply to post 52,
A few days ago I received another unsolicited letter from Barclays inviting me to borrow money with a new credit card (despite having requested several weeks ago to be taken off the mailing list).
Until the bank CEOS (and boards) are sacked, confidence in banks has no chance of being restored.
I liked Peterbaldwin's post.
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P 87,
I suspect you will be able to buy that house soon - just hang on another few months until Joe P realises the glory days are really over and accepts a realistic price ie one that Joe P can afford to pay with let's say a 50% mortgage.
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P 100,
I wish I could share your enthusiasm that the sting will be taken out of inflation.
My reading of the situation is that high inflation is the only thing that can salavge the situation ?
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What is the difference between the state handling out billions and trillions to banks and the state printing money like the Weimer Republic? Is it that the wheelbarrow is virtual?
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P 134,
Equitable Life, Company pensions ?
Do you really think the govt never lets savers loose out ?
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I know you want to blame Margaret Thatcher and Ronald Reagan for the economic ideas. You should probably be thrust a finger at a very well known economist named Milton Friedman from the Chicago school of economics. This was the economic dogma he taught the entire world to believe in. He was the original Gordon Gekko that told the world, "Greed is Good".
I do believe his concepts work but only within a market where wages are balanced and under one currency. If you trade you have to use precious metals or something of value to force balance.
At one time in our nation we understood balance. Especially in dealing with trade that we needed to respect a balance of trade. This respect is necessary so we don't incur large debts as we have done.
Even if this situation didn?t occur in this manner a recession through a loss of wage buying power must be forced to occur because of free trade. You cannot trade with people where you have a situation of market arbitrage with wages without incurring large debts or having your wages decline. Attempting to use debt to keep western wages high was wrong headed, especially with a fractional banking reserve system.
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@trevst
We can attempt to spend trillions of dollars in infrastructure projects but we have a serious problem. We have trillions of dollars in government debt. As the remainder of the world begins to suffer they will be forced to call in their IOU's. Can we actually pay our debts and do what you say? If we lose the reserve currency which allowed us to run up massive debts we will quickly learn how insolvent we really are in a serious recession. The American people are already at max taxation, they cannot pay anymore. Instead of worrying about pork spending of 800 billion congress will be deciding if we should declare national bankruptcy. I'm sure that would help make the recession last a few extra years.
We have to become fiscally responsible. We cannot continue to live in debt nor depend on credit to make us wealthy.
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I think KiltedGreen made the best single contribution to this blog. I'd like to repeat part of it in case anyone missed it:
#181
"We in the West (and increasingly, the East) seem to have reached a point, where when it comes to money, status, profit, food, drink and so on the idea of 'enough' doesn't seem to exist any more. Sufficient seems a meaningless word in a collective mentality wedded to endless growth of everything. We have a minimum wage; can you imagine the outrage of suggesting setting a maximum wage of, say ?50,000? Just remember the barely concealed horror of journalists when sales figures look a little down. As Bush said after 9/11, "keep shopping". It doesn't matter that you've got all you could possibly ever want, just throw it away and buy more. Then do it again. I suppose basically I come back to my first point to #108, unless we give this planet its rightful place in the the way we run our world and learn how to relate to it and each other properly, the outlook for humanity with this globalised, short-term and energy-obscene lifestyle doesn't look very good ..."
[end quote]
I don't know if, as some people argue, the fractional reserve system is the root of all this evil (and I don't know where KiltedGreen stands on this issue). What I find tremendously sensible about arguments made by some opponents of the FRS is that you simply can't base a financial/economic system on infinite geometric growth in resource consumption (and all that implies).
Can someone explain how salvaging and rebuilding the existing financial system will insure a sustainable ecosystem for all life on the planet? If it can't insure this, what are the alternatives?
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KiltedGreen#181
Most of the people who call themselves environmentalists are blithering idiots. They have not and will not reconcile the reality that the most people our planet can sustain at the standard of living most people aspire to with the technological capabilities we have is around one to two billion. We now have six and a half billion and it is rising. Telling the most affluent one billion that they will just have to make do with far less won't work. Even if they were willing to, the economy they would be reduced to would make in impossible for the other five billion to survive. While the current financial meltdown doesn't have anything to do with the environment, the consequences of it to ordinary people are a slight taste of what would be in store for them if the programs these people insist on were actually adopted. What makes environmentalists idiots? The fact that they would trade a looming environmental catastrophe for an immediate economic one and then wash their hands of it telling the world that is someone elses problem to solve. That and the fact that they wasted the last twenty years railing uselessly at the United States instead of insisting in major research into alternative energy that is more than the science fair projects of wind farms and solar energy we have and insisting on sharp reductions in population which they didn't. Now we will reap the whirlwind. It may already be too late. We may have already passed the tipping point. Talk to your friends in China and India who say it's not their problem. And as you do, remember the polar ice caps are melting this very minute.
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I hear that the lehman saga is going to unravel
on 24/10 the next deriative clearing day. what
do you advise savers to do go to cash?
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I am sorry Robert, someone has to develope a theory of psuedo economic psycho babble to try to understand what is going on with the markets now. We are getting a similar phenomena to the mass hysteria that gripped the nation after the tragic death of Princess Diana.
Its not helped by the tabloid style (please note I say style and note content) reporting of commentators like yourself and the BBC. Yesterday evening I watched the news rather than read it here. Every figure that was high was shouted out, like 2.EIGHT, so that we only hear the 8 and not the 2. And I see the report today uses the term 'markets spooked' - and when we go there we leave reasoning behind and we are into emotions and psychology.
Capitalism at its root level is based on greed and fear - greed from that we will not have enough to feed, house and clothe our children and thus continue our genes, and fear that we will not be able to so to do.
It requires reasoning, empathy and concern for our fellow human beings and the planet to temper it, and thats where psychology is useful. Lets be clear, sea levels rising by 7m is a catastrophe, greedy city traders and investors killing the product of Reagonomics, Thatchersim and the Chicago School of Economics is not.
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The world's stock markets have been in a classic bear market for more than a year now, and, historically, intervention by governments has not been effective in reversing bear markets. This particular one seems to be driven by several factors: the credit crunch, onset of what seems to be a recession in most of the first-world countries, housing problems in several countries, the runup in commodity prices from a year ago until a couple of months ago, ... Basically we have a well-founded lack of investor confidence.
What actions by governments, central banks, and regulators can do is prevent the kind of panic that occurred from 1929 to 1933, so that the bear market and tight credit and recession work themselves out in an orderly fashion over the next one to three years. Unfortunately, the key players among the developed countries are not all singing off the same sheet of music yet, even though they claim they are. This lack of unity is demoralizing to banks, hedge funds, private equity funds, insurers, local governments, pension funds, sovereign wealth funds, and others, and tends to further tighten credit.
All of this will work itself out eventually, regardless of what the authorities do or don't do. But if they work together, the authorities can minimize the pain experienced by ordinary citizens during the downturn.
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I am in a third world country.. things are still ok here.
People are asking the question if banks and stock market is losing so much money, how can they get hold of it. Let me say that you have already used it up. The western nations have consumed beyond their means. The standard of living enjoyed by you all in the last few years is where all the money was used up.
Maybe the banks did create money out of nothing. But banks lent this money and consumers spent this money.
Thats the reason why tax payers in the west need to bear the consequences. Because you have used up all this artifical money. Its payback time.
Normally working people are supposed to save money out of income. That money is the nest for pension, income after retirement.
While I feel sorry that your pension funds have evaporated, more likely the actual pension amount is going to be at levels that you deserve to get, having spent more than what you earned during your working life.
Yes, I know this would not fit everyone in UK or US. But that is the way the world works. We collectively pay for majority's mistake... including third world countries.
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#196 MarcusAureliusII wrote (in reply to KiltedGreen #181)
Most of the people who call themselves environmentalists are blithering idiots. They have not and will not reconcile the reality that the most people our planet can sustain at the standard of living most people aspire to with the technological capabilities we have is around one to two billion. We now have six and a half billion and it is rising. Telling the most affluent one billion that they will just have to make do with far less won't work. Even if they were willing to, the economy they would be reduced to would make in impossible for the other five billion to survive. While the current financial meltdown doesn't have anything to do with the environment, the consequences of it to ordinary people are a slight taste of what would be in store for them if the programs these people insist on were actually adopted. What makes environmentalists idiots? The fact that they would trade a looming environmental catastrophe for an immediate economic one and then wash their hands of it telling the world that is someone elses problem to solve. That and the fact that they wasted the last twenty years railing uselessly at the United States instead of insisting in major research into alternative energy that is more than the science fair projects of wind farms and solar energy we have and insisting on sharp reductions in population which they didn't. Now we will reap the whirlwind. It may already be too late. We may have already passed the tipping point. Talk to your friends in China and India who say it's not their problem. And as you do, remember the polar ice caps are melting this very minute."
[end quote]
I'm not sure who calls themselves "environmentalists" but since I don't want to be considered a "blithering idiot" I guess I'll say I'm not one of them.
The first point you make is that the limit to the number of people who can be sustained on our planet is around "one to two billion." You may be right: I assume someone has done a study that demonstrates this. You go on to suggest that, with an actual world population of six and half billion, the planet is overpopulated. I agree with this, but wouldn't you agree that "the standard of living most [wealthy] people aspire to" may have to be reduced? Or, put another way, doesn't any measure of "sustainability" have to involve both "level of consumption" and population size?
Next you say that telling the most affluent one billion that they will have to make do with far less "won't work." I assume you mean by this that they won't accept it willingly (though they might be forced to accept it unwillingly). But if they were willing, you say, "the economy they would be reduced to would make [it] impossible for the other five billion to survive." Could you explain this? I don't necessarily disagree; I simply don't understand why this would be the case.
I think I understand what you mean when you say "the current finacial meltdown doesn't have anything to do with the environment." In other words the current financial crisis has not been directly caused by the natural environment (that is, if we treat human beings as something apart from "the environment" for whom "the environment" exists as a resource to be exploited). But then you acknowledge there is a "looming environmental catastrophe." Where did this imminent (I would say "present") environmental catastrophe come from, if not from the operation of the financial system and the economic activities it supports and rewards? While we (the comparatively wealthy) may be experiencing an economic foretaste of what we would experience if the "environmentalists" could enforce their programs, are we not already experiencing a foretaste of the "looming environmental catastrophe?" But how can either of these be laid at the door of the environmentalists?
At worst then, the environmentalists (I'm still not entirely sure who they are exactly) have been ineffectual: "they have wasted the last twenty years railing uselessly at the United States instead of insisting [on] major research into alternative energy that is more than the science fair projects of wind farms and solar energy we have and insisting on sharp reductions in population which they didn't." So are you accusing them of a failure to successfully sell their ideas on alternative energy to businessmen and/or the government? Have they all been such terrible salespeople, or has there also been a reluctance on the part of investors, large and small, to back these projects because they were too "risky" compared to, say, drilling for more oil? Certainly there has been a great reluctance on the part of many people in government and busiess to act on the growing body of evidence that there is indeed a "looming environmental catastrophe." Or would you not agree with this?
I'm not defending the "blithering idiots" -- I'm trying to understand why you feel the problem of achieving a sustainable financial/economic system is largely their responsibility. Or, if I've misunderstood you on this point, could you explain what they could better do to bring about such a system, and how it would work.
My own prejudice is that a sustainable way of life, which must obviously include an economy and a financial system, is everyone's responsibility to encourage in whatever way they can. This may require adjusting their expectations, limiting population growth, avoiding or limiting waste, and accepting new technologies. And I suppose a willingness to do these things is dependent on what people value. But these are not specialized financial or economic measures; I was hoping someone could describe how a new, or greatly improved financial system might operate in a sustainable economy.
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Re 197.. "hear that the lehman saga is going to unravel
on 24/10 the next deriative clearing day. what
do you advise savers to do go to cash?"
On FT.com they state Lehman is to be cleared on the 10th October... A bad end to the week.....!!!!
http://www.ft.com/cms/s/0/6beabcdc-8f51-11dd-946c-0000779fd18c.html
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If we have our collective western governments reeling from the same crisis then maybe we could start talking about a radical change to solve some long term problems We may not be to sure where we are going and I am sure that given the choice we would all prefer to be starting the journey from somewhere else but here is where we are and so we have to start from here or stay here.- there are always choice even if none are palatable.
Next we need to have some agreement about where we want to go do we want to re-create what is in tatters and try to do the same thing better or do we want to find something better well while we reflect on that for a moment how about we agree on getting rid of some grave misconceptions about markets.
Markets balance things out ? no they don?t they provide an arena for those who have something over and above what they can use or need to exchange it for something they need or want. This instantly provides for speculation of one against the other and a seesaw is set up, the swing of which is boom and bust
Markets set a value - no they don?t they set a price value has nothing to do with it. Now look at all the comments on the recent blogs most in and or associated with the financial world have totally lost it they are convinced we are better of because the price of our homes or shares have gone up-what rubbish
The value of our home is as a shelter, a place to sleep, a place to keep us, our families and other possessions safe, what we pay for it or sell it for is a price. Price has nothing to do with value if I have £100 and the price of a house is£100 I am worth one house, if I have £50 and a house is £5 I am worth 10 houses. the value of a shire should be its earnings.
Secondly price is perceived by bankers as the worth of something it is only what some one usually them is prepared to pay for it in other words if something priced £10 I now price at £20 I am twice as well of wrong I am in a fair market no better of only in a false market am I better of short term.
Price, value and worth are not indicative of each other and not interchangeable, the problem is that people?s nerves can?t let a market run naturally. Why? Because commodities become loaded by manipulators, in this case the financial sector, with a false price a piece of creativity which is now perceived to be their value. For a market to work to be fair to all people it has to rise and fall on its own. Governments, the manipulators and the greedy let it rise but try to stop it free falling so its never a true balance making it that there are winners who win and win and loser?s who lose ad lose nothing balanced in that.
So if you want a fairer society you have to start thinking about doing something different add to this Global warming, excessive consumption, divisive culture and peak production in natural resources which only exist where at some time the earth has been exposed to clean air and or water and slowly it may dawn that doing nothing is not an opton and that what we do has to be fundamentally different.
PS if we have to talk about money and there is no escape could some BBC web techie please sort out printing pound signs and apostrophes instead of £1 and it?s
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morning all-I think we should sort out blame later-can we please find someone who can definitively sort this mess out first!
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If you can't measure it, you can't manage it.
AD apparently has little idea of the scale of the problem so how can he hope to (ahem) stabilise it, let alone get it working again.
As for "will do whatever it takes..."
..."whatever" needed to be done 12 months ago, when this all began - not sometime in the future which is what this statement seems to imply.
Can anyone individual or group actually do anything other than comment? It needs concerted effort and teamwork by companies who have only their own interests at heart.
Isn't capitalism great!
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# 203 (hack-round)
"Value", "price" and "worth" -- now that seems to me like REAL food for thought -- more so than yet another assessment of blame or theory of how the financial system failed.
Good post -- thanks! (I wish it weren't at the end of a long thread that will soon be be replaced with one discussing this morning's headline.)
P.S. I'm also frustrated by pound signs and apostrophe's not rendering properly. Could it be a problem with browser settings?
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papanca #201
What is the level of consumption people aspire to in the developing world? They want to live in a house that is not overcrowded, that is they don't want to be in one small room with ten people. They want it to be comfortable, that is warm in the winter, cool in the summer so that they don't freeze or swelter. Most want to eat meat more than once a month as a rare treat, they want it to be a steady part of a balanced diet as responsible nutritionists advise. They want more mobility than a bicycle affords, they'd like access to some kind of motor powered vehicle like a moped or a small car like a Tata especially if they don't live in large cities, as well as access to public transportation. They'd like the convenience of modern appliances such as indoor plumbing in their homes, electric lights, a refrigerator to keep food, a television set, a vacuum cleaner, even a computer and a phone. And they do not want to starve to death or go hungry frequently. All of this takes energy.
The main source of energy the world has available comes from buring fossil fuels, coal, oil, and gas. The United States is the world's largest producer and consumer of energy. Although it only produces 20% of its electricity needs from nuclear power while France produces 80%, on an absolute basis the US produces far more. It has also expoloited all of the possible hydroelectric power available in North America. 50% of its electrical power comes from burning coal, a fuel it has in enormous abundance. (BTW, the sequestration of CO2, so called clean coal technology strikes me as one of the most dangerous ideas imaginable because when these pockets of gas eventaully escape as they inevitably will, they will kill eveyone for miles around as happened when CO2 bubbled up from a pocket in a lake in Africa killing several thousand.
In the last several months, I've had occasion to fly across the United States several times, something I hadn't done in many years. Whether you fly over it on a clear day or drive across it, you cannot help but be awed by the vast stretches of farmland which seem to go on forever. Much of the world depends on the food grown on these farms especially in the America's midwest to survive. Some is sold at market prices to people who can afford it, some at below market prices to those who are poor, and much is given away to those who are destitute and desperate. It takes a lot of energy to plant, grow, harvest, process, and ship this food. Its cost is directly linked to energy costs. With energy costs high and just a small percentage of it diverted to make alcohol that's added to gasoline (10% of gasoline now sold in the US is alcohol) the price of food has shot up all over the world. What would happen if production of this food was cut back so severely that little more than what is needed for American domestic consumption was produced? Right now the US is the number one grower of food, the number one exporter of food, and food is America's number one export product. Do you think starving mililons who could no longer get it would care that producing it made the polar ice caps thousands of miles away melt? Facing starvation they would be in open revolt and there would be nothing anyone could do about it.
When the US no longer can buy the exports of other nations because of the impact the cutbacks proposed by "environmentalists" would have which as I said would make the current crisis pale by comparison, how will people in foreign countries that export to the US earn money to survive themselves? The US economy like it or not is the main economic engine of wealth in this world. Every time the Europeans deny it, they are surprised that events impacting America's economy affects their own severely. It's true for the entire world. Why is this so? First of all, the US produces 28% of the world's wealth with less than 5% of the world's population. This makes it one of the most efficient if not the most efficient producer of wealth in the world. Two thirds of the US economy is driven by consumers. That means when they stop consuming manufactured goods from abroad, a cascade ripples throughout the entire world's economy which slows down in response. China has an economy that is roughy one fourth to one fifth as large as America's but has over 4 times as many people but China generates even more CO2 now than the US does. That means that on average, an American produces between 15 and 20 times as much wealth per unit of CO2 as the average Chinese but environmentalists insist that we look at only per capita CO2 production. By that measure, the US comes in at a high number. The EU agreed with China that the developed nations should be cutting back CO2 to a far greater extent than the "developing" nations like China, in fact China feels it should not have to cut back at all. India which is following in the footsteps of China agrees. So the environmentalists in Europe would punish an efficient producer of wealth per CO2 evolved by forcing its economy to reduce while allowing an inefficient producer to continue right on. Small wonder that not even being able to grasp the importance of getting this kind of analysis correct, most of the world hasn't a clue about the complex economic instruments which have created the current crisis or the disaster the environmentalist's plans would create.
Am I accusing environmentalists of failing to "sell" their ideas? Absolutely. First of all, they failed for the longest time to present through dispassionate scientific analysis a convincing argument to many including the US government that global warming was even a problem. Then they failed to convince governments to invest in alternative energy technology to anything like the degree necessary to avert or delay the problem, they didn't convince governments who are burning down rainforests that they must stop, and they said nothing about population control. The world's population is headed for 9 billion. Britain boasts of its compliance with Kyoto, one of only two EU nations which has, but how will it cut back 20% or more in the coming years when its population is expected to grow by about 15 million or more? What are its specific plans? And what have the Europeans who shouted the loudest at this done with the technological resources they've had avialable to them in the interim? They've designed a redundant jumbo airplane, a redundant global positioning satellite system, a redundant space program, and a monster atom smasher (all of which don't work or can't be built by the way which is besides the point.) Yes they failed because the real motive behind their rants wasn't to stop global warmng at all, they just wanted to destroy the economy of the United States a country which they hate out of jealous rage indifferent to the reality that they would be destroying their own and everyone elses economy in the process. Does this make them blithering idiots? Yes and that's the best that can be said of them.
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After a day of 'emergency talks', is this the best the EU can come up with??? a 50,000 euro deposit guarantee?!?!? Are they on drugs?? Or just having a laugh?? UNBELIEVABLE!!!
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#207 MarcusAureliusII
Thanks very much for your long and articulate expansion of your views on the failure of the "environmentalists."
I'm not really qualified to debate you on the issues, and I do agree the problem is that the world economy has to a great extent been driven by the appetite of the American consumer.
But I'm not so sure the European (or other) "environmentalists" (and I now think I understand better to whom you're referring) simply hate America out of a "jealous rage" to the point where they would prefer everyone be brought to economic ruin rather than see 2% of the world's people (not all American) control 50% if its wealth. (Probably one could quibble about this statistic, so let's just say, most of the wealth is controled by a very small group, including some Europeans.)
I think some environmentalists (among whom I guess I would now include myself), see there are two related problems facing our species: 1) how to (gently and peacefully) reduce the world's human population and 2) provide it with a comfortable way of life based on a sustainable level of renewable resource consumption. Of course, much hangs on what is defined as "comfortable" and this in turn must be used to quantify how large a population can be so sustained.
Would you consider a desire to solve the above equation an instance of "blithering idiocy" (I really don't mind the charge), or of "blithering idealism" (which may be the same thing)?
I can't help thinking (hoping) that we are in some ways in agreement. I certainly agree with much of your assessment of the failure to propose convincing arguments for the development of non-destructive, renewable energy sources. On the other hand, can't we say that those who were in positions of power (government and industry) had very self-serving reasons not to want to be convinced there were environmental problems?
America certainly produces a vast amount of food, though I think it can be argued its farming methods are not truly "efficient." However, I recently read that the two greatest dietary problems in the world are malnutrition and obesity. This seems to me symbolic of (what I see as a problem with) the distribution of wealth in the world.
What I hoped to get clarified when I first posted was whether the resuscitation of the existing global financial system (which is in deep trouble if not "meltdown") can really lead to achieving the twin objectives I described above (reducing and stabilizing the population and providing a sustainable way of life). Or, if not, is now a time to begin building an alternative economic model for the planet. Since the current situation cannot be the fault of environmentalists being in control, I can't see blaming them for it. What you seem to be implying is that whatever financial system they propose would make things even worse. Have they proposed such a system in sometimes advocating abolishing the fractional reserve banking system? (As I said before, I find their goal appealing but don't understand how the system would work.)
Thanks again for your reply.
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The fractional reserve model (essentially a confidence trick) employed by the banks is certainly a tricky one, add onto that how crazily the banks leveraged on their assets.... then imagine these assets devaluing...people defaulting on loans...etc etc. Now pile on complex derivatives, based on madly complicated formulae?s that nobody can be sure off to muddy the financial waters further.....pile on the banks attitudes that they are "too big to fail", promoted by persistent interest rate cuts by the government, thus making them feel invincible.....pile on further the cheap flow of money from China and ...don?t forget the immense temptation that the Fed/treasury has to resist printing more fiat money....devaluing the dollar further.....and then of course add on the consumers expectation that debt funded lifestyles are sustainable. Is it any wonder we are in this mess! I think the finger of blame points in several directions. But, which consumer would not buy a great house cheaply if he/she could? Which banks would lend really prudently when shareholders were asking for better returns, and all the other banks were doing the same? Why were the regulators who set the boundaries sleeping at the wheel? Did they not see this coming?
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Just found this gem of an article that explains the cause of this crisis in plain english. Really helped me to understand the issues in-depth.
http://www.sundayherald.com/news/heraldnews/display.var.2457240.0.smoke_mirrors_and_how_a_handful_of_missed_mortgage_payments_started_the_global_financial_crisis.php
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MarcusAureliusII - papanca - acknowledgeing your debate 207 209 and reference to my coments at 203 in this item
curently in society
We operate on - opportunity for me and rules for you
We need - opportunity for all (I mean all) and rules for renegades
We need a system for society in which all can reach their potential.
By the way if you want markets and cheap energy to lubricate an economic expansion and provide inspirational drive then what better than providing economic stability in the developing world.
However you have to change the belief that success is measured by your personal achievements and reward people by what they achieve for others. That is a major leap in human nature that will then bring about the social and economic environment we desire (or just need) it will create an interesting scenario if a bankers bonuses were based on what had been earned by the country or the businesses they funded rather than the spurious products they stitched their peers and their customers up with.
Reward savings, reward cooperation, reward sustainability and it should be that no one other than those who opt out has to go without. We need to define desirability, confirm ethics and morality, engender citizenship and community, profile wealth, success, happiness and contentment, separate price, cost, value and worth, and encourage hope, charity and inclusion within a sustainable global society.
Pipe dreams - stuff and nonsense ? the right solution or maybe not. The question is this in the society we have created over the last 5000 years is a radical change of this magnitude doable within the next 50 years? I believe with the right approach some careful planning and much cooperation, an old fashioned miracle or two and some extra time possibly.
Point is have we the time and can the vast majority of mankind, the greedy, the dissenters, the blithering idiots or anyone else for that matter get their mind around that concept. Other questions like the wealth of nations the population explosion the scarcity of fossil fuels the ambitions of religious and political factions, even deciding over a third runway will all be eroded as nature solves the problems for us all. Then it will be left for some life form possibly like the clangers to discover in about 5 million years from now the fossilised remains of the human race most likely under the soup chicken.
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#210 and #211 devmukherji
I agree "confidence trick" seems to apply to fractional reserve banking. The Herald article you posted was very informative. Thanks.
Someone (in another blog) also posted links to a five-part video called "Money as Debt" which covers the history of FRB:
http://www.youtube.com/watch?v=vVkFb26u9g8
http://www.youtube.com/watch?v=sanOXoWl0kc
http://www.youtube.com/watch?v=_yvRZoM-2r8
http://www.youtube.com/watch?v=WKeMrPgDPBU
http://www.youtube.com/watch?v=JF5YZPk3NUc
(in case you haven't seen it).
#212 hack-round
You're right. (That's to say, I agree!) But how does one go about creating such a massive shift in values? Not only does it require that people choose to acquire only what they truly need (as opposed to what they have been conditioned to want), but they must also overcome their hatred or mistrust of people from a different race, religion or tribe with whom they see themselves in competition for existing resources.
It's a tall, tall order. (But I hope the moderators don't judge it to be "off-topic.")
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Dear Mr Peston
right from Northern Rock's problems last year your doom-mongering has help drive this crisis, in the UK anyway.
It isn't about your career you know.
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Blah! blah! blah! After all the fancy talk, the very ones that caused this evil mess are sill trying to send these fraudulant losses to UK and USA citizens to pay off. This huge, historic "bail out" looks like someone trying to bail out the Titanic with a tin pail! These economic big shots got caught with their pants down and their dirty hands in the pocket books of all good citizens---you can not just TALK this away. NO ONE knows when and how far this downfall will go...it is TO LATE TODAY TO FIX IT TOO.
Now after what many citizens in America and Britain have been saying, this all looks like a backhanded PLOY to SOCIALIZE and INTERNATIONALIZE world banking... JUST WHAT CITIZENS DO "NOT" WANT. The worse this mess becomes, the more rats start jumping ship. There are many bad days and sad stories to come yet. WHY SHOULD CITIZENS STAND BY AND SEE THE PEOPLE WHO CONTROLLED AND CREATED THIS DOWNFALL, TRY TO CHANGE BASIC ECONOMIC PHILOSOPHY TO "CORRECT" IT? THEIR TRACK RECORD IS VERY BAD AND GETTING WORSE BY THE HOUR.
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I know there won't be many buyers for Bank shares but why has Barclays share price more than doubled in the last hour when it has been one of the highest fallers all day?
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The matter is a "common sense" established everywhere in the world, that some people earn a lot of money and the rest not enough for a survival. So the upper class has to think again, spread this wealth back to the roots before too late. We are aproaching not less than a global catastrophe, called WAR - some "scientists" might think that WAR is necessary, but ask us, the basement of the wealth - our answer is NO TO WAR
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Of course its serious. The only way forward is to throw out all our leaders in all the countries that dithered on for too long before it flared in their faces.
Beginning with a certain fellow called Bush.
I know he is going. But not soon enough.
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I don't really know much about how the stock market works but, if all of these stocks are tumbling in price because people are worried about the future, who on earth is buy them?
Any stocks that were bought yesterday are going to worth a lot less tomorrow. So who is making money out of dumping all of these stocks?
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The banks need money, and need to keep it in the UK, not Ireland, Iceland, Saragans-Buchs, Leichtenstein or somewhere else exotic.
Why should we put our money into the bank at an interest rate lower than inflation? Surely the Bank of England should be raising the interest rate, not lowering it. That would pull in foreign cash and encourage UK citizens to stop panicking.
No-one is going to take on new loans, we are all in debt up to our eyeballs, with mortgages, Credit cards, car-loans. The banking sector is going to shrink.
We are also going to have to expect an enforced drop in our standard of living to pay for the decade of over-indulgence. Us, the bankers, and the huge unproductive public sector that we in manufacturing have to pay for.
We are going to have to wake up to the old idea that a 'service-sector' is a luxury we cannot support. We need to make things, sell ideas, export goods abroad, and in that way create wealth.
We are going to have to shrink government expenditure as well and improve efficiency.
The first thing the government should do is dump all their accountancy/ management consultancy contracts. Big wasteful Whitehall in thrall to men in hand-made suits.
Maybe something good will come from this melt-down. I don't think the public at large realise what a third-world operation we run in hte UK.
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World 'leaders' have encouraged and profited from Fractional banking from at least the time of Andrew Jackson [well, post Jackson because he saw them for what they are - black hearted, greedy, psychopathic Pirates- and did all he could to stop them!].
All banks, without exception, are Private enterprises owned and run by 'Families', and as such will and do feed off of all around them.
[Yes, even the Federal Reserve - owned by the Rothschild's]
Do away with Fractional Banking then we can get back to a Credit Society rather than the Debit Society we are drowning in now.
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For a clear, concise explanation of Fractional Banking go to:
http://video.google.com/videoplay?docid=-515319560256183936
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I think someone needs to write the equivalent of the Keynes "Open Letter to President Roosevelt" (http://newdeal.feri.org/misc/keynes2.htm) to our politicians. They obviously have no clue. I love his analogy of "putting on flesh by letting out the belt."
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Surely the answer is very simple. At the meeting today in Washington, where were the elephants? Of course, I mean China, India, and the Sovereign Wealth funds. As you have stated, banks have to be recapitalised as a result of the deterioration in their asset base. Would it not be easy to offer China etc. the opportunity to invest pari passu with the British Government in the banks. I believe this proposal would have attractions for all parties concerned. Banks would have a new source of capital to allow them to lend to each other in markets other than the overnight, which would in turn increase lending to corporations, in particular if a surplus of capital was offered; China etc. would have a much better home for surplus capital,in terms of interest, in particular if the promised monitoring schemes were in place and the resuscitation of the global economy would enable China and the others to maintain their main goal of increasing employment to avoid civil unrest.
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I've just seen a comment that Robert Peston caused a run on banks by his comments. People who buy and sell shares to make money rather than earn it are to blame for any run on banks.
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Why not take the 500billion(if it CAN be borrowed!) and start again. 500billion divided by 30million basic rate taxpayers. £16,000 each. Start a special bank account for each basic rate taxpayer(addresses are already available to government) Place £16,000 in each account with a minimum date for withdrawl. The banking system now has £500billion to work with . This is actual money in accounts designed for long term investment ie. the start of a pension scheme. The bank accounts can be regulated to avoid exceptionally risky investment. The banks will have been recapitalised but in a much more productive manner. Everyones efforts at the moment seem to be directed towards returning to the previous state. This is not possible. We would have to ROW back through this tide of debt we have built up and THEN start the process of saving again. The genie is out of the bottle now. Thanks to Roberts expert presentation and explanation of this situation, we have all realised whatever was being traded between these institutions it certainly wasnt REAL Money. The banks will digest every morsel fed to them and then the rescue money will end up re-financing the pension funds of the top 10%, and we the basic rate taxpayer will be financing the whole process. Pensions are the beginning and end of this whole situation.
I have no doubts that thinking 'outside the box' like this has enough holes in it to sink it. At least being outside the box you have a chance to swim. Inside we are all in danger of drowning!!
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